Chris Dodd is gone to pasture and Barney Frank is about to follow. The legacy of their signature reform legislation called Dodd-Frank however is still alive- and it could kill again.
Getting past the rhetoric on the left and the right is always hard even three years after the legisaltion was passed. That’s why it’s pretty startling when liberal economists and conservative politicians agree that whatever the other consequences of so-called Dodd-Frank banking reform legislation, it’s failed in its main purpose.
Of all the reasons put forward by proponents of banking reform, the one that made the most sense was that we needed to prevent a failure by a big money-center bank from taking the rest of the banks with it as they did in 2008. Dodd-Frank not only doesn’t address the issue in any substantive way, it in fact ensures that the few too-big-to fail banks get bigger and bigger, while killing the small banks that loan to everyone else.
“In the aftermath of the crisis, the banking sector has become more concentrated, and the risk posed by too-big-to-fail banks has, if anything increased,” Joseph E. Stiglitz, a Nobel Prize-winning economist and former Clinton administration advisor, told the Senate Banking Committee in August according to the New York Times.
The criticism has been much the same from the right.
“Real financial regulatory reform must deal with these lenders who were a leading cause of our economic recession,” said Rep Michele Bachmann when offering up an unsuccessful attempt to repeal Dodd-Frank as the GOP took over the House. “True reform must also end the bailout mind-set that was perpetuated by the last Congress. I am proud to work towards repeal of Dodd-Frank because Congress must protect the taxpayers, instead of handing out favors to Wall Street.”
While both the left and the right offer ideological reasons for their opposition to Dodd-Frank, the American Bankers Association (ABA) offers some more pragmatic reasons.