The Dodd-Frank act was passed in 2010 as a solution for what led America to experience the Bush economic crisis – America’s largest financial crisis since the Great Depression. I have been critical of the bill historically because I was concerned that it didn’t do enough and it didn’t do it fast enough.
Mitt Romney wants to repeal the Dodd-Frank act because the vast majority of his big money donors are in Wall Street and they would benefit financially from keeping things business as usual….a laissez faire economic policy where the fox can run the hen house and it’s all legal. Well – many have said that Dodd-Frank will eliminate the Too Big to Fail problem despite the increasing size of America’s four largest banks; Forbes thinks the law works as a gradual, stealth 2nd coming of Glass-Steagall. One thing I’m certain of – if we do not start to break these banks up….it’s just a matter of time until our goose is cooked.
But according to panelists at the Securities Traders Association of New York on Thursday, the landmark Depression-era law that separated commercial banks, securities firms and insurance companies, undone in 1999 by legislation known as the Gramm Leach Bliley Act, is now effectively back on the books. And on Monday, financial services-focused investment bank Keefe, Bruyette & Woods chimed in with its own argument that big bank breakups may not be far off.
Two of the key changes affecting U.S. banks come from the 2010 Dodd Frank legislation. Those include Title VII, which brings a host of new rules to previously unregulated derivatives markets, and the Volcker Rule, which places strict limits on banks’ ability to make directional market bets. Another sea change comes from Basel III, Swiss-based international banking rules that will require banks to hold a larger cushion against possible losses.
Surprise, surprise – CEO and Chairman of the Board of JP Morgan Chase – Jamie Dimon disagrees with the new regulations:
Recently, we have begun to achieve modest economic growth around the globe, somewhat held back by certain natural disasters such as the tsunami in Japan. But I have no doubt that our own actions – from the debt ceiling fiasco to bad and uncoordinated policy, including the somewhat dramatic restraining of bank leverage in the United States and Europe at precisely the wrong time – made the recovery worse than it otherwise would have been. You cannot prove this in real time, but when economists 20 years from now write the book on the recovery, it may well be entitled, It Could Have Been Much Better.
It is precisely this leverage that created the need to bailout these Too Big To Fail banks with over $700 billion directly from taxpayers in addition to a handful of various FED programs that were essentially handouts to the largest banks. It’s not a surprise to anyone that banks would like to go back to the days where they were able to loan 25 or even 50 times more than what they had on hand because it increases profits even if it’s very, very risky. Well – history has shown us at least twice now with severe consequences what happens when we give banks the ability to lend without capital requirements – citizens pay for it with catastrophic and life-altering consequences.
The Federal Reserve Bank of Philadelphia outlines the FED’s role in the Dodd-Frank Act:
The Federal Reserve System is involved in implementing over 250 Dodd-Frank Act initiatives, three-quarters of which are mandated by the legislation. The Federal Reserve is the lead agency responsible for implementing two-thirds of these initiatives.
Current Fed initiatives vary in type: about 40 percent are rulemakings; 40 percent are process development/changes; 10 percent are studies and reports; and the remainder of these consist of consultations with other agencies on rulemakings, studies, and reports.
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