Skip to content

Dodd-Frank – One Year On

July 11, 2011

“Not perfect but at least a step in the right direction.” That sums up the tone of The Dodd-Frank conference, hosted by the Pew Financial Reform Project and NYU Stern School of Business that I attended June 26th in Washington, DC. That conference contrasted sharply with the GARP conference I attended in New York earlier in the year. The GARP conference was attended by bankers and practitioners of risk management whereas the Dodd-Frank conference was populated by policy makers, government agency reps, academicians and research institute policy wonks.

The conferences provided different perspectives on the financial crisis, GARP was “friendly” to the banking industry, whereas the Dodd-Frank Conference was stark in its assessment of financial institutions responsibility for the crisis.

Thomas Hoenig, President of the Federal Reserve Bank of Kansas City minced no words and flatly stated in his address that “I suggest that the problem with SIFIs is they are fundamentally inconsistent with capitalism.” [SIFI are Significant Financial Institutions or simply those deemed too big to fail.] I kept wondering if this was a trial balloon by the Fed.  His speech is reproduced at http://www.kansascityfed.org/publicat/speeches/Hoenig-NYUPewConference-06-27-11.pdf and the video can be viewed at http://www.c-span.org/Events/Pew-Financial-Reform-Project-Reviews-Dodd-Frank-Act/10737422509-5/ (Mr. Hoenig’s speech begins at about the 40 second mark).

Neil Barofsky, former Special U.S. Department of the Treasury Inspector (who played a critical role in the TARP funds distribution) provided his insight into the crisis. In particular, he pointed out that $700 Billion was originally approved by Congress with the understanding that the funds would be used to purchase bad mortgage assets and that these would then be modified. What happened though was quite different. The banks invested the funds elsewhere and did NOT modify mortgage loans.

This left many people on Capital Hill quite upset about what was done or not done and prolonged the mortgage crisis by dragging it out longer than needed. Mr. Barofsky’s no hold barred comments may be heard at http://www.c-span.org/Events/Pew-Financial-Reform-Project-Reviews-Dodd-Frank-Act/10737422509-7/ (his comments begin almost immediately).

Many participants at the Dodd-Frank conference would have wished for more comprehensive legislation (i.e. making the Volker rule law or re-instating Glass-Steagall). Instead, what has become law is full of imperfections. Nonetheless, it is a step in the right direction and perhaps the best we could have expected given the need to balance passing a piece of legislation with the politics of getting it passed.

by Patrick Kedziora

Advertisements
No comments yet

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: