Will the Dodd-Frank Bill Really Accomplish Anything?

As America continues to work through the provisions in the Dodd-Frank bill, commonly referred to as Wall Street Reform, there’s huge controversy over just how this law is supposed to work and whether it will ultimately be effective in its general goal: To prevent another great unraveling of the American economy like the financial crisis that reared its head in 2008.

What Is the Dodd-Frank Bill?

The Dodd-Frank bill was signed into law in July of last year and consists of two main parts mentioned in its full title: The Dodd-Frank Wall Street Reform and Consumer Protection Act.

The bill is named for two of its sponsors, Barney Frank in the House of Representatives, and Chris Dodd in the Senate. As for its provisions, the bill creates new capital and leverage regulations and shuffles around some of the agencies responsible for financial oversight. It also adds a few new ones, including a specialized Bureau of Consumer Financial Protection.

Then there are certain overall guiding missions for those parties tasked with the bill’s implementation, things like “promote market discipline” and “maintain investor confidence.”

All of this sounds well and good, but more than a few detractors are questioning the essential reforms made to address systemic risk.

Dodd-Frank Criticisms from Wall Street

More than half of private equity industry executives in a recent poll by KPMG, a U.S. audit tax and advisory firm, identified difficulties in complying with the bill. Other concerns are over the effectiveness of consumer protection oriented regulations: As an example of how Dodd-Frank could ultimately prove ineffective, small business advocates are claiming that merchant credit card processing companies will simply raise unregulated types of fees in order to offset lower income from newly regulated ones.

Add a significant recent criticism of the bill from a major banking executive. At a September event called the American Banker Regulatory Symposium, a key figure, M&T bank CEO Robert G. Wilmers, raised concerns that many of his audience might have heard before, along with some relatively unusual ones.

In a common take on potential problems with Dodd-Frank, Wilmers bashed the “GSEs,” Fannie Mae and Freddie Mac, which took the brunt of some of the worst fallout from toxic mortgages, and, from the point of view of many an executive, were responsible for a great portion of the resulting mortgage-backed security mess and general financial crisis.

But Wilmers also took a different tack, talking about a lack of movement away from speculative investment vehicles, and saying the new regulation hasn’t really changed the business model that caused the systemic risk originally. Even with new structures like a “central clearing house” for derivatives, not everyone is convinced that the bill will actually clean house in the way it’s supposed to, or act as an effective circuit breaker if another financial crisis happens.

As for bankers, Wilmers is not the only one who has raised criticisms. For his part, J. P. Morgan exec Jamie Dimon hasn’t been shy about attacking Dodd-Frank for a variety of reasons, citing excessive regulation, as one might expect. Dimon even took his complaints to Fed secretary Ben Bernanke, where in a recent exchange chronicled on CNN Money, Bernanke responded that the market itself is “too complicated” for a comprehensive analysis.

Is There Hope for the Bill?

On the other hand, what proponents of the law generally like is the second half of the equation, the consumer protections that the bill promises to individuals and families.

Since many American consumers are vulnerable to predatory lending, and even to “predatory deposit banking” as large commercial banks hit customers with all sorts of bank fees and limit the upside from deposit interest, more than a few average citizens support the idea of banking reform, especially since there’s still a lot of populist ire over Wall Street and corporate bailouts.

Many view Dodd-Frank as a good place to start, if not a comprehensive solution. Meanwhile, all of the assembled experts will continue to sift the data to try to find some kind of definitive support for whether or not the bill works.