Following the 2008 financial crisis, a financial reform package aimed at preventing a recurrent crisis, addressing the so-called“too big to fail” issue and promoting financial stability, was enacted. This week the Dodd-Frank Wall Street Reform and Consumer Protection Act celebrates its fifth anniversary since US President Barack Obama signed it.
Although some successes are recognised, the slow process of reform has also been at the receiving end of criticism. The Dodd-Frank is “a work in progress” and “it is far from being ready to stand on its own two feet”. Roughly 40 percent of the proposed rules have yet to be finalized and it has been reported that following massive lobbying effort, the financial services industry is seeking to have the piece of legislation delayed or watered down.
Some claim that it failed in diagnosing the cause of the “disease”. The financial crisis was not the result of deregulation, it was indeed the consequence of “dumb regulation”. Therefore, “too-big-to-fail institutions have not disappeared. Big banks are bigger, small banks are fewer, and the financial system is less stable. Meanwhile, the economy remains in the doldrums”, says Mr. Hensarling, a Republican congressman. Others argue that it should have taken into consideration the issue of housing finance, perceived as one of the principal causes of the crisis, the separation of banks' speculative activities as well as the excessive bank bonuses that remain in place to this day.
Despite its good intentions, “the biggest problem with Dodd-Frank is what it can’t do: it can’t change Wall Street’s culture, one in which permissiveness, cheating and abusive behavior is too often the norm”.
After five-years and with the benefits of the regulation still to be seen by consumers, it seems a good time to take stock.