Third Way held a discussion with former Senator Christopher Dodd on the Dodd-Frank legislation. Third Way has called the bill underappreciated and lauds it as the pursuit of financial stability.
Senator Dodd recalled the environment in which the legislation was written as being dire. The Secretary of the Treasury had told Congressional leaders that without action the economy could implode. Therefore, action was critical.
Senator Dodd warned that the 2008 crisis was a European/US event and thus regulatory “harmonization” was relatively easy. However a new crisis would undoubtedly include the emerging nations and, as such, would be a more difficult situation.
Dodd-Frank was a bipartisan effort with Republicans not only contributing but in some cases “chairing” the groups writing the different provisions. Senator Dodd emphasized that what he wanted the bill to do was instill confidence which had been decimated by the 2008 crisis. While the bill could have gone further to reform the current “alphabet soup of regulators” and to address issues in Fannie Mae and Freddie Mac, issues regarding credit rating agencies and bankruptcy laws, time was of the essence and such further actions would have extended the process.
While the creation of Dodd-Frank was bipartisan the passage was not. However, Senator Dodd believes that Republican support was lacking because of the inclusion of the Consumer Financial Protection Bureau. Without the inclusion creating the CFPB, the bill would have passed with 75 votes.
Senator Dodd dismissed current criticism of the bill as political. He declared that no one could really believe the economy was better off in 2008 and doubted that there would be serious efforts to repeal the bill.
Going forward, Senator Dodd opined that both consumers and financial interests would be better served if there were one consolidated regulator, the Federal Reserve System was overhauled and that the missing elements mentioned above in Dodd-Frank are addressed.
Senator Richard Shelby will take over as Chair of the Banking Committee in January. He was instrumental in writing the “too big to fail” provisions in Dodd-Frank and voted for the Volcker Rule preventing banks from making certain speculative type investments and controls their relationship with hedge funds. According to Senator Dodd, Senator Shelby, on some issues, is somewhat of a “populist” and is against bailing out banks. Therefore, as Chair of the Banking Committee, Senator Shelby would not be expected to attack Dodd-Frank.