Dodd Frank’s 5th Anniversary Passes, But Should We Celebrate?

Yves here.The fact that there have been comparatively few five year retrospectives on Dodd Frank is a tell that despite all of the financial services industry complaints, the impact of the supposed landmark legislation was underwhelming. And that was by design. The bill had an astonishingly large number of issues that not resolved, but were kicked down the road via studies to be followed by rulemaking. That not only delayed implementation but even more important, gave the industry a second whack at watering down the bill’s provisions.

This Real News Network segment gives a more detailed assessment of what Dodd Frank did and did not accomplish.

ARED BALL, PRODUCER, TRNN: What’s up world, and welcome back to the Real News Network. I’m Jared Ball here in Baltimore.

This month marks the fifth anniversary of the Dodd-Frank Wall Street reform and consumer protection act. The Obama administration claimed attempt to prevent another financial crisis like the one that hit in 2008. but what has this really meant? Are we all really safer now? Helping us answer these and other questions is Gerald Epstein who is an economist and researcher with the Political Economy Research Institute up at UMass Amherst, and is co-author of a new report: Banking from Financial Crisis to Dodd Frank: Five Years On, How Much Has Changed.

Welcome back to the Real News, Gerald Epstein.

GERALD EPSTEIN, ECONOMIST, PERI: Thank you very much for having me.

BALL: So let’s start with that. Tell us what you all have found. Has much changed, are we safer now? What is it that you all have concluded in this report?

EPSTEIN: Well, I did this report with Juan Montecino. And the two of us, with the help of Americans for Financial Reform looked at the evolution of banking and whether banking trends have changed very much since the passage of Dodd Frank. In particular we wanted to see if banking’s gotten safer, if it’s started contributing more to the real economy, to Main Street, to families, to small businesses.

What we found in a nutshell is that there are certain ways in which it’s gotten safer. That is, the couple of ways that leverage is down, that is the risky–the amount of risky bets, the banks are taking those down somewhat relative to the capital that they have. The banks’ cushion of capital is higher than it was just prior to the crisis. So in these respects, banking has gotten a bit safer. And the Dodd Frank act is I think somewhat if not largely responsible for some of these trends.

But in other ways the same trends that we saw in banking that led to get–become so dangerous, and additional trends have really started accelerating again. So I think when you add everything up, I’d say that we’re a bit safer but not nearly as much safer as we should be.

BALL: So on the right we see criticism saying that more regulation will lead to greater chance of a major crisis that will have an even greater impact. And then on the far left some of us would argue that there should be a nationalization of the banks. What do you think actually should happen, and what do you think are the best or most likely next steps to actually take place?

EPSTEIN: Well first of all, the Republicans have launched a campaign fueled by millions of millions of dollars of lobbying by the financial services industry, the banks. The hedge funds, the private equity firms, the insurance companies. To prevent Dodd Frank from being properly implemented. They’ve launched this campaign to poke holes in it, to delay it. To starve the regulatory agencies like Commodity Futures Trading Commission, the FCC, so that they can’t implement it.

So they’ve launched, they’ve waged this campaign from day one, and they’ve had some big successes. Their argument that it’s made the financial system more dangerous is without any merit whatsoever. There’s no real evidence that it’s made the financial system more dangerous. They say it will dry up liquidity, but in fact it was excessive liquidity that led to the housing bubble in the first place. They say it will raise the costs of borrowing to consumers, but in fact most of the banks and financial institutions want, and I found are holding excess reserves and lending for speculative reasons, not to small businesses or Main Street, and Dodd Frank has had nothing to do with that. So in fact those bankers just want to get rid of Dodd Frank so that they can get back to doing exactly what they were doing before.

So what’s, what’s likely–what should be happening? Well, there’s some movement on the part of senators and congresspeople, more on the left, some Democratic senators and congresspeople like Elizabeth Warren, who’s argued for a new Glass-Steagall Act to separate investment from commercial banking. Separate risky, speculative banking from the core banking that’s supposed to serve the economy. Others have, Bernie Sanders has proposed breaking up the big banks. There are others who propose tithing the regulations on derivatives, and so forth.

All of these I think are very good ideas. And should be supported, and should be, should be defended. But they’re not enough. So nationalizing the banks, well, I think one of the important things that we ought to be doing is promoting more alternatives to private banks. So there’s a state bank in North Dakota, for example. There have been state banks that have been proposed for other states. The Federal Reserve and the Treasury Department should give more support for cooperative banks, for community banks, make it easier for credit unions and other more cooperative banks to work.

And in the extreme, if banks threaten to go bankrupt again, or go bankrupt as they did in 2008, then yes. Nationalize the banks, and start running them in the interest of the public rather than let the bankers continue to make millions of millions of dollars.

So nationalization is one tool, but there are many other things that can be done as well, short of that.

BALL: Gerald Epstein, thank you very much for joining us for this segment here at the Real News Network.

EPSTEIN: Thank you very much for having me.

BALL: And thank you all for joining us as well. And for all involved, I’m Jared Ball here again in Baltimore. And as always as Fred Hampton used to say, to you we say peace if you’re willing to fight for it. Peace, everybody. Catch you in the whirlwind.

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