Mark Calabria

It's been a year since President Barack Obama signed the Dodd-Frank Wall Street bill, yet little has changed for the better in our financial markets — and much has changed for the worse.

Dodd-Frank promised the American public an end to the notion of "too big to fail." Though the act offers government the tools to resolve failing firms without cost to the taxpayer, it leaves regulators the option of not liquidating those firms or doing so while protecting bondholders and charging the red ink to the taxpayer or to the rest of the financial services industry.

Not only has Dodd-Frank failed to end too big to fail; it has extended the federal safety net. The much-heralded derivatives provisions actually, for the first time, set up a process where clearinghouses can access the Federal Reserve's discount window.

Instead of reducing risk in the derivatives market, the act aggregates that risk into a few entities, then wraps an implicit guarantee around those same entities.

In addition, the more than doubling of the ceiling for insured bank deposits grossly reduces market discipline, while putting the taxpayer further on the hook for any Federal Deposit Insurance Corp. losses.

Uncertainty has clearly been a drag on business confidence and economic growth. The passage of Dodd-Frank, however, has greatly added to that uncertainty. A year after enactment, we still do not know which firms are going to be labeled "systemically important;" which nonbanks are going to be regulated at the federal level or which derivatives are going to require centralized clearing. Only a small portion of Dodd-Frank's required 385 regulations have been finalized.

Rather than actually legislating, Congress vested most decision-making power under Dodd-Frank in unelected bureaucrats. Meanwhile, proponents of the act are now predictably howling that those bureaucrats would be doing a splendid job if they only had more funding.

A basic principle of good government should be the ability to read a statute and have some guess as to whether you are in compliance or not. That's impossible to do under Dodd-Frank.

The act states that taxpayer funds cannot be used for bailouts. But consider that the law said the same for Fannie Mae and Freddie Mac. Taxpayers are still out more than $150 billion for their rescue.


Mark Calabria

Mark A. Calabria, is director of financial regulation studies at the Cato Institute.