Dodd-Frank Financial Reform Slow, Steady

It is has been a year since Congress enacted a sweeping new financial regulations law, and the legislation is holding up, says the law’s champion, Barney Frank (D-Mass.), despite efforts by the law’s detractors to delay its implementation.
Dodd-Frank Financial Reform Slow, Steady
REFORM BILL: Connecticut Democrat Sen. Chris Dodd (L) and Massachusetts Democrat Rep. Barney Frank (R) attend the signing of the Dodd-Frank Wall Street Reform and Consumer Protection Act by President Barack Obama July 21, 2010. (Saul Loeb/Getty Images)
Andrea Hayley
7/12/2011
Updated:
10/1/2015

Analysis

<a><img src="https://www.theepochtimes.com/assets/uploads/2015/09/DoddFrank_103019156.jpg" alt="REFORM BILL: Connecticut Democrat Sen. Chris Dodd (L) and Massachusetts Democrat Rep. Barney Frank (R) attend the signing of the Dodd-Frank Wall Street Reform and Consumer Protection Act by President Barack Obama July 21, 2010.  (Saul Loeb/Getty Images)" title="REFORM BILL: Connecticut Democrat Sen. Chris Dodd (L) and Massachusetts Democrat Rep. Barney Frank (R) attend the signing of the Dodd-Frank Wall Street Reform and Consumer Protection Act by President Barack Obama July 21, 2010.  (Saul Loeb/Getty Images)" width="320" class="size-medium wp-image-1800975"/></a>
REFORM BILL: Connecticut Democrat Sen. Chris Dodd (L) and Massachusetts Democrat Rep. Barney Frank (R) attend the signing of the Dodd-Frank Wall Street Reform and Consumer Protection Act by President Barack Obama July 21, 2010.  (Saul Loeb/Getty Images)
It is has been a year since Congress enacted a sweeping new financial regulations law, and the legislation is holding up, says the law’s champion, Barney Frank (D-Mass.), despite efforts by the law’s detractors to delay its implementation.

In a recent press briefing, Rep. Barney Frank said he is “struck, at least in public, by how little advocacy there has been for very substantial changes” to the law, much of it related to protecting consumers and fixing a broken mortgage system.

Frank is co-author, together with former Connecticut senator, Chris Dodd, of the Financial Regulations Law and Consumer Protection Act, also known as the Dodd-Frank bill.

Republican legislators have introduced bills to restrict funding for the regulatory agencies responsible for writing the rules that will implement the new law, and denied key appointments to the relevant agencies. Those actions slow the implementation process.

Frank suggested that detractors were “coming at it sideways,” but he said as long as the process continues, he remains confident of the results.

Explaining a relative lack of opposition to the significant changes, Frank said that it is actually a “very pro market model,” saying there is no price fixing to interfere with the free flow of markets.

Fixing the Mortgage Market

The bill calls for the regulation of derivatives, a previously unregulated market, widely seen as a cause of the 2008 global financial disaster. The $6 trillion global market is based on speculation, and betting against the future value of an asset.

It also calls for new rules on mortgage lending, including requiring banks to retain 5 percent of the mortgage value in their coffers as collateral, and requiring home buyers to put 20 percent down.

Talking to reporters, Frank characterized derivatives as guns, which fired bullets comprised of the millions in bad loans made by banks across the nation. The combination of the two eventually led to the system’s crash.

Dodd-Frank attempts to make the markets more transparent by moving derivatives speculation onto exchanges and routing them through clearinghouses.

Derivatives’ rules under Frank-Dodd were set to go into effect July 16, but the agency responsible for writing the rules, the Commodity Futures Trading Commission (CFTC), recently voted to delay some of the provisions for up to six months.

An all-new Consumer Financial Protection Bureau, also created by the legislation, is focused on simplifying a standard mortgage applications form. Debate about how much information banks should obtain about homebuyers’ financial situation is ongoing. Prior to the collapse, banks were offering zero down loans, and offering some loans without confirming a homebuyer’s ability to pay.

A Tendency to Avoid Risk

Frank said that there has been significant pushback on the proposed 20 percent down requirement for new home purchases. He conceded on Monday he is likely to support a lower value, more on the order of 4 to 5 percent. However, he was unwilling to back down on requiring banks to keep greater collateral to support their loan portfolios.

Frank said that his efforts to get banks to retain responsibility for risk is under “assault.” He called the trend worrying.

“This assault on risk retention is a terrible idea,” he said. “The risk didn’t go away.”

“What we are hearing is, ‘We haven’t done it this way. It is going to be harder, it is going to cost a little more, it is disruptive.' Yes, it is disruptive because we had to disrupt a rotten system,” said Frank.

Prior to 1986, when the laws changed, it was common for homebuyers to put down 20 percent on a new homes purchase, and for banks to retain 100 percent of the risk. But with the innovation of financial securitization, this old way of doing things went by the wayside. Government policies, largely fed through government-sponsored enterprises Fannie Mae and Freddie Mac, contributed to this sea change in the way mortgages are sold.

Supporters of financial reform, which includes most Americans, according to opinion polls, have accepted that “business-as-usual” cannot continue. As primary backer of the reform, no one understands this better than Frank.

He said that he would “like to help people with their income, not help people pretend they have income they don’t have.”

“The single biggest cause of all this was the ability of people to make mortgage loans with neither regulation nor risk,” said Frank.

Reporting on the business of food, food tech, and Silicon Alley, I studied the Humanities as an undergraduate, and obtained a Master of Arts in business journalism from Columbia University. I love covering the people, and the passion, that animates innovation in America. Email me at andrea dot hayley at epochtimes.com
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