The Fairest Way To Implement Dodd-Frank

June 13, 2013 at 6:27 am Leave a comment

imagesCA3N1UTLWithout much fanfare, the OCC announced that it will grant two year exemptions to the nation’s seven largest banks from  a Dodd-Frank mandated requirement that large financial institutions “push out” their swap operations to non bank subsidiaries.  The idea behind the provision is that federal insurance guarantees shouldn’t be used to bail out investment banks that make bad bets on tricky derivatives.  We are told that the two year extension will facilitate the orderly implementation of this requirement.  Who wants to bet that Bank of America, Citibank et al will ever have to comply with this regulation?

Now, from what I have read on this subject there are strong arguments both for and against the provision, but frankly good and bad arguments can be made about all of the most contentious provisions of Dodd-Frank.

We are coming up on the third anniversary of its enactment and astoundingly only 38% of its provisions have been implemented.  It is becoming increasingly obvious that for the biggest and well-connected institutions — aka the institutions most responsible for necessitating financial reform in the first place — regulators will do everything they can to accommodate their wishes.  As the former Inspector General of the TARP program commented when hearing about the latest regulatory capitulation “regulators continue to kowtow to the financial interest of the largest banks rather than inconvenience them.”

Of course this isn’t fair.  Credit unions have less than six months now to comply with mortgage and servicing requirements that will have a profound impact on the way they provide home loans to their members, even though they are not responsible for these onerous mandates.

I have a solution.  Let’s pass a simple amendment to Dodd-Frank providing that no provision or regulatory requirement of the act shall take effect until all of its requirements are imposed on the ten largest financial institutions in the country.

This simple amendment would tie the regulatory burden of credit unions to the lobbying efforts of our nation’s financial giants.  We would get no worse a deal than that negotiated by J.P Morgan’s government representatives.  It would also put Congress in the uncomfortable position of actually having to push for Dodd-Frank to be implemented.

Of course this would never happen.  Instead, the way Dodd-Frank is taking effect Congress and the President can say they reformed Wall Street; Wall Street gets to carry on as usual and when consumers complain about the lack of Wall Street reform, Congress can blame regulators on the one hand while continuing to take campaign contributions from the very banks fighting Dodd-Frank with the other.

Three years ago, I had no patience for armchair extremists who saw conspiracies behind every rock of our political system.  But when I compare the enormity of the problems exposed by our financial crisis with the paucity of fundamental reforms, it is getting harder and harder to brush aside the reactionaries.  It is pathetic to see credit unions burdened with regulations that they didn’t need in the first place while the institutions that truly need reigning in effectively choose the mandates with which they will comply and continue to conduct themselves in a manner worthy of Russian oligarchs who know that they can get away with anything they want, just so long as they keep the political overseers happy.


Entry filed under: Advocacy, Compliance, Political, Regulatory. Tags: , , .

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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