Why Dodd-Frank could be a harder sell than Obamacare

On Monday morning, White House Press Secretary Jay Carney tried to put a positive spin on the news of JPMorgan’s $2 billion loss. It didn’t represent a failure of the new Wall Street regulation under Obama, he insisted. It was a vindication of the law’s existence.


(Mark Lennihan/AP)

It’s the same political problem that Obama is facing with his other big legislative achievement, the Affordable Care Act. On health care, Obama has tried to make the best of the situation by promoting some of the early benefits of the law, like coverage of young adults up to 26 under their parents’ plan. But the most controversial part of the law — the individual mandate — hasn’t yet gone into effect, and neither have the state-based insurance exchanges.

Similarly, there’s a major lag between the passage of Dodd Frank in July 2010 and its start date. And unlike the case of Obamacare, it wasn’t supposed to be that way: Legislators had originally planned for much of the law to go into effect in 2011 and this year. But regulators are way behind schedule, and Dodd-Frank has been stuck in the bureaucratic purgatory known as the “rule-writing process.” The Dodd-Frank Act provides the blueprint, but it’s up to the Federal Reserve, the Securities and Exchange Commission and all the other major agencies to write the rules.

Parts of Obamacare went through the same process. But the enormous complexity of modern finance and the rules intended to govern them has made the rule-writing process for Dodd-Frank perhaps even more onerous and time-consuming. Regulators have missed most of the deadlines in the original law.

Even when the new regulations are finalized, banks typically have a long time to comply with them. The Volcker Rule, for example, is scheduled to go into effect in July, but banks will have about two years to adjust to the new ban on speculative bets for their own benefit, known as proprietary trading.

When the changes do go into effect, they won’t necessarily register as “reform” to the layperson. Unlike Obamacare, most of the new rules don’t directly affect consumers. Yes, there’s the Consumer Financial Protection Bureau and new restrictions on debit-card fees, but most of the changes won’t be visible to Main Street.

Most of Dodd-Frank’s rules, in fact, are meant to be preventive. And, as TARP has proved, prevention is a hard political selling point: It’s tough to convince the public that you’ve done good because things could have been worse, whereas egregious mistakes that happen in spite of the rules (e.g. MF Global, JPMorgan’s gambling away $2 trillion) are much more visible.

Instead, what ordinary Americans are most likely to see is the messy, confusing process of turning these rules into final law, a process that’s heavily dominated by bank lobbyists. Federal regulators typically meet with the groups that submit formal, detailed recommendations on new regulations. Industry groups have poured money, time and resources into this process, and it shows: Regulators from the Commodity Futures Trading Commission, FDIC, the Fed and SEC have held a whopping 3,445 meetings with outside groups since Dodd-Frank’s passage, according to law firm Davis Polk, which has been tracking the process.

That doesn’t mean that federal regulators will necessarily side with the big banks at the end of the day. But until the rules are finalized, we’re left to wonder whose side they’re really on. And even when that day finally comes, the public won’t necessarily be keen on what really just happened on Wall Street

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