Last week, various news outlets published retrospectives on 2011 and predictions for 2012. In all of this, you may have missed some notable editorials about the ongoing implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act. These end-of-year editorials state what Treasury knows well – Wall Street Reform is on track, and a fair look at recent progress should leave all Americans optimistic about the stability of our financial system.
Despite progress towards implementing these important reforms, staunch opposition continues. For example, in their attempt to derail full implementation, detractors argue that Wall Street Reform is disproportionately responsible for reducing bank profitability. On December 27, the New York Times editorial board rebutted that claim directly:
“The weak economy, volatile markets, toxic mortgages and potential exposure to the euro zone are undeniably the biggest drags on banks’ profits. But bankers, their lobbyists, and the politicians who do their bidding are eager to heap outsize blame on new national and international bank rules, including trading curbs, consumer protections and higher capital requirements.”
The Times noted that the reforms are designed to mitigate the cycle of investment bubbles and bursts that can cripple the financial system:
“New regulations, properly implemented and enforced, will crimp the banks’ profitability. But that is not a sign they are defective — just the opposite. It shows that the rules are beginning to work as intended to rein in destructive products and practices that inflated the bubble, led to the crash and necessitated the bailouts. Higher capital levels, for instance, mean a hit to bank profits. But they are a boon to the broader economy because they help to restrain speculation and to ensure that banks — not taxpayers — absorb unexpected losses.”
The Times’ editorial board was not alone in recent praise of sensible Wall Street reforms. Bloomberg’s editorial board found in the Dodd-Frank Act “an elegant core of sensible ideas.” In fact, they wrote, one could “consider it a fail-safe system with three levels of containment”:
“Level 1 is designed to make disastrous mistakes at financial institutions less likely. One central element is transparency. …
“Level 2 aims to make financial institutions better able to survive when mistakes do happen. The crucial piece here is higher capital requirements. …
“Level 3 seeks to make sure that if a financial institution does fail, it won’t bring down the whole system. …”
These three basic tenets of reform stem directly from the crisis that preceded the law’s enactment. Though detractors suggest that Wall Street Reform should be stopped because the regulators are taking the time to get new protections right, Bloomberg argues that reforms should be implemented quickly for the sake of spurring economic growth:
“The solution is not to repeal Dodd-Frank. It is to construct its containment system as quickly as possible. The uncertainty over how the law should be implemented is probably its greatest flaw. The sooner rules are written and enforced, the sooner banks can learn to live with them and get on with the business of helping the economy grow.”
Indeed, the current calls to repeal the Dodd-Frank Act are a significant cause of the uncertainty that responsible business leaders are seeking to avoid. Once it is fully implemented, the Dodd-Frank Act will improve market certainty, strengthen the financial system, and help boost the economy. And that’s a good outcome for all Americans concerned about their financial future.
Colleen Murray is the Spokesperson for Domestic Finance.