DODD FRANK WALL STREET REFORM AND CONSUMER PROTECTION ACT Purpose, Critique, Implementation Status and Policy Issues
World Scientific Now Publishers Series in Business ISSN: 2251-3442 Vol. 1 Games and Dynamic Games by Alain Haurie, Jacek B. Krawczyk and Georges Zaccour Vol. 2 Dodd Frank Wall Street Reform and Consumer Protection Act: Purpose, Critique, Implementation Status and Policy Issues edited by Douglas D. Evanoff and William F. Moeller Vol. 3 The History of Marketing Science edited by Russell S. Winer and Scott A. Neslin
World Scientific Now Publishers Series in Business: Vol. 2 Douglas D Evanoff William F Moeller Federal Reserve Bank of Chicago, USA World Scientific
Published by World Scientific Publishing Co. Pte. Ltd. 5 Toh Tuck Link, Singapore 596224 USA office: 27 Warren Street, Suite 401-402, Hackensack, NJ 07601 UK office: 57 Shelton Street, Covent Garden, London WC2H 9HE and now publishers Inc. PO Box 1024 Hanover, MA 02339 USA Library of Congress Cataloging-in-Publication Data Dodd Frank Wall Street reform and consumer protection act: purpose, critique, implementation status and policy issues / [edited] by Douglas D. Evanoff and William F. Moeller (Federal Reserve Bank of Chicago, USA). pages cm. -- (World scientific-now publishers series in business, ISSN 2251-3442 ; volume 2) Includes bibliographical references and index. ISBN 978-9814590037 (alk. paper) 1. United States. Dodd-Frank Wall Street Reform and Consumer Protection Act 2. Financial institutions--law and legislation--united States. 3. Financial services industry--law and legislation--united States. 4. Consumer protection--law and legislation--united States. I. Evanoff, Douglas Darrell, 1951 editor of compilation. II. Moeller, William F., editor of compilation. KF969.58201.A2 2014 346.73'082--dc23 2014004396 British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library. Cover Illustration by Robert Dlotkowski Copyright 2014 by Douglas D. Evanoff and William F. Moeller All rights reserved. In-House Editors: Sutha Surenddar/Philly Lim Typeset by Stallion Press Email: enquiries@stallionpress.com Printed in Singapore
Dedications This collection is dedicated to the women in my family who have put up with my musings/reflections/arguments about my work and profession throughout the years. They have provided support in my research efforts, and in life more generally. That would include: Mary Ann, Rachel, Kathryn and Othia. Doug This work is dedicated to my mom, Kitty, dad, Bill, and all of my grandparents for the unrelenting support and encouragement throughout my life; to my brother, Carl, and sister, Kathryn, for keeping me on my toes; to my nephew Finley for bringing the joy out of any situation; and to my girlfriend Marnie for making me smile during these busy few years. Will
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Preface The Dodd Frank Wall Street Reform and Consumer Protection Act (Dodd Frank) was signed into law on July 21, 2010 following the financial crisis and the onset of the Great Recession. It introduced significant regulatory reform aimed at protecting consumers, investors and taxpayers. Most agree that it will have farreaching implications for how financial services firms will conduct business in the future. The act has been praised for positioning the financial industry to support the U.S. economy in a more stable manner than seen in the past. It has also been criticized for being unnecessary (since many of the new regulations could arguably have been enforced in the pre-dodd Frank environment) and excessively burdensome without really addressing the issues that generated the financial crisis of the 2000s. The new regulation requires significant effort from regulators. For example, the act requires the development and implementation of some 398 new regulatory rules, various mandated studies, and the need to introduce a number of new bureaus, offices and councils with responsibility to study, evaluate, and promote consumer protection and financial stability. Additionally, and perhaps most challenging, there is a mandate for regulators to identify and increase regulatory scrutiny of systemically important institutions and introduce new macroprudential regulations aimed at increased financial market stability. Three plus years into the implementation of the act, much has been done, but much remains to be done. It continues to be a work in progress. This volume serves as a practitioner s guide to recent financial regulatory reform. What are thought to be some of the more important aspects of the Dodd Frank Act are discussed in a non-technical manner and from a number of perspectives: including that of industry scholars who have been actively involved in evaluating financial regulation, regulators who are responsible for implementing the reform, financial policy experts representing think tanks and banking trade associations, congressmen and congressional staff involved with developing the vii
viii Preface legislation, and legal scholars. The purpose of this volume is to summarize and critique the act, evaluate how the act is being implemented and how the implementation process is progressing, and discuss modifications that, in the views of the authors, might be needed to more effectively achieve the stated goals of the legislation. Versions of some of the articles in this volume were previously published and credit for the original publications is provided in each article. The editors thank the various agencies and publications for allowing the works to be reproduced in this volume. They particularly thank the Federal Reserve Bank of Chicago for allowing articles from its Economic Perspectives and various Proceedings of a Conference on Bank Structure and Competition to be reprinted. Representatives from the FDIC were also most cooperative and made a significant contribution to the volume. As an aside, the articles included often come from very different sources scholarly finance and economic journals, speeches, legal journals, congressional committee reports, and regulatory agency releases describing how new regulations are to be implemented and, as a result, differ significantly in style. This results in some inconsistencies in reference listings and footnote formats across the various reprinted sources. Nevertheless, we willingly accept these inconsistencies as the articles included seem to be the relevant pieces to achieve the goals of the volume. Finally, the editors thank the individual authors for taking the time to address the issues and being willing to share their views. They would also like to thank colleagues at the Chicago Federal Reserve for numerous discussions about the act; Rita Molloy and Han Choi for editorial assistance; Ella Dukes, Sue Parren and Pam Suarez for helping with formatting issues; Bob Dlotkowski for developing the cover design; and Zac Rolnik from now publishers Inc. for being flexible and helpful in bringing this publication to fruition. The views expressed in this volume should be recognized as those of the authors and may not reflect the views of the Federal Reserve Bank of Chicago, the Federal Reserve System, or the organizations with which the individual authors are affiliated.
Dedications Preface Contents PART I Introduction and Summary of The Act 1 Chapter 1 The Dodd Frank Act: An Overview 3 Douglas D. Evanoff and William F. Moeller PART II Critical Assessment of the Act 31 Chapter 2 Regulating Wall Street: The Dodd Frank Act 33 Matthew Richardson PART III Financial Stability via Regulation 57 Chapter 3 Financial Stability Regulation 59 Daniel K. Tarullo Chapter 4 Implementing Dodd Frank: Identifying and Mitigating Systemic Risk 83 Mark Van Der Weide Chapter 5 Implementing the Dodd Frank Act: Progress to Date and Recommendations for the Future 93 Scott D. O Malia Chapter 6 Dodd Frank Act Implementation: Well Into It and No Further Ahead 101 Wayne A. Abernathy v vii ix
x Contents PART IV Financial Stability via Efficient Failure Resolution 111 Chapter 7 We Must Resolve to End Too-Big-To-Fail 113 Sheila C. Bair Chapter 8 The Orderly Liquidation of Lehman Brothers Holdings Inc. Under the Dodd Frank Act 123 Federal Deposit Insurance Corporation Chapter 9 Implementing Dodd Frank: Orderly Resolution 159 Martin J. Gruenberg Chapter 10 Resolving Globally Active, Systemically Important Financial Institutions 167 Federal Deposit Insurance Corporation and the Bank of England PART V An Alternative View: Financial Stability via Bank Breakups 187 Chapter 11 Do SIFIs Have a Future? 189 Thomas M. Hoenig Chapter 12 Ending Taxpayer-Funded Bailouts: Dodd Frank Promises More Than It Can Deliver 197 Richard W. Fisher and Harvey Rosenblum Chapter 13 Solving the Too-Big-To-Fail Problem 219 William C. Dudley PART VI Consumer Protection 233 Chapter 14 Partnering: The Consumer Financial Protection Bureau and State Attorneys General 235 Richard Cordray Chapter 15 Prepared Remarks Before the National Association of Attorneys General 241 Richard Cordray Chapter 16 The Consumer Financial Protection Bureau: The Solution or the Problem? 247 Brenden D. Soucy
Contents xi PART VII Was Dodd Frank Necessary? Needed? 279 Chapter 17 The Financial Crisis and Too-Big-To-Fail 281 Barney Frank and the Minority Staff of the House Financial Services Committee Chapter 18 A Dissent From the Majority Report of the Financial Crisis Inquiry Commission 295 Peter J. Wallison Index 305