Washington, D.C. — Today, one day before the two-year anniversary of the Dodd-Frank Act—the landmark suite of reforms designed to fix a broken financial system following the 2008 crisis—the Center for American Progress released a report detailing five concrete ways that our financial markets are stronger today, alongside five concrete things that can be done to make them even stronger.
Two years ago, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act to strengthen the U.S. financial sector and to protect taxpayers from a repeat of the 2008 crisis, which cost the United States 10 million jobs and $17 trillion in household wealth. Two years after President Barack Obama signed Dodd-Frank into law, we have seen some notable successes. Our financial markets are stronger than they were before the crisis and Americans can count on better consumer finance protection in their day-to-day interactions with financial institutions.
“The financial crisis has taken a huge toll on the country—especially America’s middle class,” said Jennifer Erickson, Director of Competitiveness and Economic Growth at the Center for American Progress. “The Dodd-Frank reforms were a critical step in the right direction to strengthen our markets and protect taxpayers from another collapse. A recent poll showed that three out of four voters support Dodd-Frank, and the two-year anniversary is a fitting time to acknowledge some of its successes and also to be sure we finish the job it started.”
- A consumer watchdog is now on the beat. There is now an agency devoted solely to protecting consumers. Just this week the Consumer Financial Protection Bureau scored its first high-profile win on this front by calling Capital One’s deceptive marketing practices to account, returning $140 million to customers and fining the credit card giant $25 million.
- Every financial institution must now play by the rules. “Nonbank financial institutions” ranging from small payday lenders to massive too-big-to-fail investment banks used to be outside the scope of regulation and could play by different rules. Dodd-Frank changed that.
- Increased capital requirements are now in place. Before the crisis many banks were grossly overleveraged, like Lehman Brothers which had $1 in equity for every $30 it was borrowing when it failed. When banks didn’t have the capital to cover their losses, taxpayers were forced to pick up the tab. Dodd-Frank mandates banks to have sufficient capital to withstand another crisis.
- Regulators now have the authority to wind down failing institutions. Large banks now have to submit “living wills” describing how they would have an orderly wind down in the event of failure. Under the process, management is fired and shareholders bear the losses—not the taxpayer.
- New rules will help rein in executive compensation. In 1980 CEO pay relative to average worker pay was 42:1. By 2011 it was 380:1. And as Warren Buffett noted, “In the half a dozen financial institutions that needed help the most during the crisis, that were too big to fail … the managers which led them into the trouble in all cases went away very, very wealthy.” Dodd-Frank calls for say-on-pay votes which allow shareholders to vote on executive compensation plans at least once every three years—a practice that is already having a significant impact on corporate practices.
In addition, the authors spell out the following five concrete things that can be done to make our markets even stronger:
- Implement the Volker Rule to protect taxpayers from excessive risk-taking by financial institutions.
- Finalize derivatives reform to protect our markets from over speculation in this hundred-trillion-dollar market.
- Ensure financial regulators have the resources to protect taxpayers by adequately funding the Commodity Futures Training Commission.
- Hold the line on mortgage origination and securitization to protect homeowners, investors and taxpayers.
- Continue to ensure coordinated global financial reform and strong international minimum capital standards are enacted.
Read the report:
- Dodd-Frank Financial Reform After 2 Years: 5 Successes and 5 Things That Will Make Our Markets Stronger by Jennifer Erickson, Tamara Fucile, and David J. Lutton
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