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The Flip Side of the Dodd-Frank Act

By: Bill Poquette

I’m going to miss it. What has become the Dodd-Frank Wall Street Reform and Consumer Protection Act has fueled this column off and on for most of two years. Generally, the coverage was not very charitable. But now it is the law of the land and thus maybe time to look at it with a skeptical but less-critical eye. Several things to smile about were cited by trade groups and regulators after the Senate sent the bill to President Barack Obama for his signature last month.

The Independent Community Bankers of America were thankful that some modifications they advocated were included in the bill. Cited by ICBA Chairman Jim MacPhee, CEO of Kalamazoo County State Bank in Schoolcraft, Mich., and Camden R. Fine, president and CEO, were changes in the FDIC assessment base, stricter oversight of too-big-to-fail institutions, and the inclusion of non-bank financial firms under consumer compliance regulations.

Neil Milner, president and CEO of the Conference of State Bank Supervisors, emphasized that the bill “preserves the dual-banking system and all that it entails: a system of checks and balances between state and federal regulators that prevents consolidation of regulatory authority in Washington, D.C., and influence into a handful of money center banks; a diverse and competitive industry marked by charter choice and innovation; and access to credit for individuals and businesses in every corner of the country.”

Having dodged dire threats to the political independence and regulatory reach of the Federal Reserve, Chairman Ben Bernanke was pleased that the bill strengthens the consolidated supervision of systemically important financial institutions and gives the government an important additional tool to safely wind down failing financial firms. It also enhances the transparency of the Federal Reserve, “while preserving the political independence that is crucial to monetary policymaking,” he said.

FDIC Chairman Sheila Bair was effusive in her praise of the legislation, no doubt because it includes a number of measures she has strongly advocated.

She wisely acknowledged that no set of laws can prevent another crisis in the future. “However,” Bair said, “what this law will do is help limit the incentive and ability for financial institutions to take risks that put our economy at risk, it will bring market discipline back to investing, and it will give regulators the tools to contain the fallout from financial failures so that we will never have to resort to a taxpayer bailout again.”

If Bernanke and Bair are right, this could be the silver lining behind two years of rancor in Congress, extreme banker anxiety and regulators battling to defend their turfs. Some will pay a price for Dodd-Frank, but even its fiercest critics should find value if we truly have seen the end of too big to fail.

Bill Poquette is editor-in-chief of BankNews.

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