Reactions to Dodd-Frank Law Run A Gamut from Enthusiasm to Disgust

Government and industry leaders were quick to react to the Dodd-Frank Wall Street Reform and Consumer Protection Act, which passed yesterday afternoon in a Senate vote and which President Obama promised to sign into law right away.President Obama, as expected, touted the bill as a consumer-friendly solution to the credit crisis. "The United States Congress has now passed a Wall Street reform bill that will bring greater economic security to families and businesses across the country," he said. "Because of this reform, the American people will never again be asked to foot the bill for Wall Street's mistakes. There will be no more taxpayer-funded bailouts - period. If a large financial institution should ever fail, this reform gives us the ability to wind it down without endangering the broader economy." He promised that the bill will "crack down on abusive practices and unscrupulous mortgage lenders, reinforce the new credit card law we passed banning unfair rate hikes, and ensure that folks aren't unwittingly caught by overdraft fees when they sign up for a checking account."

FDIC Chairman Sheila C. Bair was also enthusiastic about the new law. "A meaningful framework is now in place that addresses many of the weaknesses in our financial system that led to the financial crisis," she said.

Bair vowed that the FDIC will move quickly to create the new rules required by the bill. She praised the law's giving the FDIC the power to shut large banks down, its creation of a Systemic Risk Council, the authority it gives regulators to oversee derivatives, and the creation of the Consumer Financial Protection Bureau, as well as the strengthening of capital requirements for bank holding companies as well as banks themselves.

The Independent Community Bankers of America released a statement saying that although it "vigorously disagrees with some sections of the final bill, the Dodd/Frank Act does create an important precedent that recognizes two distinct sectors within the financial services spectrum-Main Street community banks and Wall Street megabucks." The group likes the changes in FDIC assessments (large banks will be charged more than they have in the past), stricter oversight of too-big-to-fail institutions, and the inclusion of non-bank financial firms under consumer compliance regulations. The group vowed to "fix problem provisions in the legislation and minimize any additional burdens on community banks" after the bill becomes law. The American Bankers Association openly expressed disappointment with the bill. "While its core provisions provide needed reform, it is overloaded with new rules and restrictions on traditional banks that did not cause the financial crisis," president Ed Yingling said. "The result will be over 5,000 pages of new regulations on traditional banks and years of uncertainty as to what the massive new rules will mean."

My favorite response to the bill was reported in the Wall Street Journal in a quote from former SEC chief Harvey Pitt, who gave the new law an "F" for failure or, at best, "I" for incomplete. "This legislation fixes nothing, accomplishes nothing, yet promises everything. Legal and consulting fees will skyrocket. This bill is truly the 'Lawyers' and Consultants' Full Employment Act of 2010.' Most of the attempted reforms are poorly drafted, or contain loopholes so large that a fleet of trucks could get past the supposed barriers. Where the bill accomplishes something it is largely likely to harm competition, force a 'brain drain' of talent away from Wall Street, and boost the performance of commercial and investment banks located outside the U.S."