Bair on the state of financial regulation

The Dodd-Frank Wall Street Reform Act, enacted on July 21, 2010, was originally hailed as a landmark reform effort, an appropriately ambitious response to the financial shenanigans that ushered in the financial crisis and the recession, according to the bill's supporters. The industry was none too pleased with the effort, but the industry's lobbyists knew that the passage of the law was merely the beginning. What ensued was a rather historic attempt to tinker with the law, even after it was passed.

Indeed, as we pass the two year anniversary of the law, you have to wonder if there has ever been a law that left so much to the future, a lobbyist's dream bill. One critical aspect of the law, the Volcker Rule, looks like it will be delayed even more, as the July deadline for implementation will likely pass without even a final rule set. The lobbyists have certainly earned their fees for their post-passage efforts.

For confirmation of the frustration felt by industry reform proponents, we turn to Sheila Bair, among the most respected of regulators who served in the immediate aftermath of the financial crisis.

"Notwithstanding thousands of pages of proposed and final rules to implement this important law, nothing much seems to have changed … . The system is not getting fixed and we need to send a message to Washington. We're tired of the 600-page swap definitions and thousand page mortgage disclosure rules. To quote Roseanne Roseannadanna again, 'What are you tryin' to do? Make us sick?' We need regulators to write rules that the public can understand and the examiners can enforce. They need to stop rising to the bait when lobbyists come in seeking special interest provisions. They need to work together to prioritize, coordinate, and finalize cohesive and effective rules that are targeted on the lingering problems in our financial system -- and Congress needs to support them. It's time to stop timidly working around the edges and get the job done."

That easier said than done, however. On this historic anniversary, it's easy to see why the reform advocates are so dour. But the mood could change if we were ever to get a Volcker Rule that truly restrains risks while allowing for legitimate activities in logical and enforceable ways. -Jim