Tuesday, July 21, 2015 marks the fifth anniversary of the Dodd-Frank Wall Street Reform and Consumer Protection Act. As Dodd-Frank turns five, congress members and industry leaders examine just how effective the reform act has been within the government agencies to which it was applied.

These agencies include: U.S. Commodity Futures Trading Commission (CFTC), U.S. Securities and Exchange Commission (SEC), Federal Deposit Insurance Corporation (FDIC), Office of the Comptroller of the Currency (OCC), and the Consumer Financial Protection Bureau (CFPB).

Rep. Jeb Hensarling (R-Texas), chairman of the House Financial Services Committee, delivered a speech today at the American Enterprise Institute (AEI), discussing the where the U.S. stands with Dodd-Frank and what reforms need to be enacted for more economic growth.

The Dodd-Frank Act was enacted by Congress in the wake of the financial crisis. Congress believed that the crisis was caused by insufficient regulation of the private financial sector, particularly Wall Street, Hensarling noted. In reality, the government’s housing policies were to blame. Its goal is to ultimately prevent another financial crisis and avert huge economic costs this would place on the economy. This reform is thought to be the largest and most restrictive regulation within the financial services industry since the New Deal.

“Its proponents, including the president, promised that it would lift our economy into ‘too-big-to-fail’ and promote financial stability,” Hensarling said in his speech. “Yet, five years later, the evidence continues to mount that our society is now less stable, less prosperous, and less free. It is clear now that the financial crisis did not result from deregulation, but instead from dumb regulation.”

Hensarling titled his speech, “The Unhappy Results of the Dodd-Frank Act,” highlighting that this reform act has not provided the anticipated results for the economy or consumers and that “Dodd Frank is the absolute epitome of Washington greed.”

“Washington not only failed to prevent the financial crisis, in many ways it led us into it,” Hensarling said. “If you had to point to a root cause of the financial crisis, this was it: government housing policies. Additionally, the Federal Reserve certainly did its indispensable part by maintaining a highly accommodative monetary policy that dramatically lowered interest rates and kept them low for a very long time and inflated a housing bubble.”

Democratic staff on the Financial Services Committee, led by Ranking Member Maxine Waters (D-California), also placed their highly opposite opinion of the Dodd-Frank Act thus far in a new report released Tuesday.

Their report determined that while the Dodd-Frank Act has been successful in the face of constant Republican attack, more must be done to ensure all Americans can benefit from our nation's recovery.

“Five years and nearly 13 million jobs later, the Dodd-Frank Wall Street Reform Act has put our nation on a path to economic recovery. Today, our financial system is safer, more accountable, and more transparent,” said Congresswoman Waters. “The financial crisis represented the worst financial disaster in a generation. And in the face of relentless Republican attempts to roll back these critical reforms, Democrats remain committed to fighting to protect American consumers from the worst actors in our financial system.”

According to the report, and in spite of these attempts to undercut the law, Dodd-Frank has empowered regulators with vital tools to prevent a future crisis. The report also provides a roadmap for regulators and Congress to “bridge the recovery gap” while also addressing small financial institution concerns.

“Congress and regulators should work together to bridge the recovery gap,” the report noted. “While the economy has rebounded significantly since the enactment of Dodd-Frank, some groups and communities have yet to fully benefit from the recovery. The wealth gap—the difference in wealth between high, middle and low-income households or between white and minority households— is currently at its widest level in 30 years. Middle, lower-class, and minority families have seen their wealth stagnate. The recovery gap also includes small financial institutions. While bank failures have greatly slowed since Dodd-Frank, and the law and Democrats have provided numerous exemptions and exceptions for smaller financial institutions which have helped them to stabilize, small financial institutions could benefit from additional regulatory relief, as provided for in HR 2642, which all Committee Democrats have cosponsored. As Congress intended for Dodd-Frank to help struggling communities, bridging the recovery gap for these persons and institutions should be the next phase of reform.”

National Association of Federal Credit Unions (NAFCU) President and CEO Dan Berger also issued a statement today regarding the five-year anniversary of the Dodd-Frank Act and its impact on credit unions.

“Since the implementation of the Dodd-Frank Act, we have lost 1,250 federally insured credit unions – over 17 percent of the industry–since the second quarter of 2010 due to the overwhelming regulatory burden,” Berger said. “Credit unions – not-for-profit, member-owned financial institutions–have been widely recognized for not having caused the financial crisis and for their prudent business model, but they are bearing the heavy burden of regulations imposed on them in response to Dodd-Frank and there appears to be no end in sight.”

“As credit unions disappear, consumers suffer the most,” Berger added. “Credit unions offer financial services with low fees, competitive interest rates and exceptional service.”

  

Justin Lee Thayer is Lane counties expert in market analysis for real estate investors. Call Justin @ 541-543-7287

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