Four years ago, President Obama was sworn in as a financial crisis was still engulfing the markets and the economy. Now he can point to a Wall Street overhaul that he helped push through Congress, intended to prevent such a meltdown from happening again. But to a large extent, the real impact of those financial reforms will depend on what happens over the next four years.
The Dodd-Frank Wall Street Reform Act passed in the summer of 2010, but more than half of the new rules have yet to take effect. The law created a blueprint for the most sweeping rules, which the Treasury Department, Federal Reserve and individual agencies still have to write.
The complexity of the law and the huge pushback from financial industry lobbyists has slowed the process: As of Jan. 2, only 136 of the 398 rules that are required have been written, and many pending ones are past deadline, according to Davis Polk's analysis:
The way these pending rules are written will help determine how far the federal government will go in reducing risk on Wall Street. One of the biggest pending rules includes the Volcker Rule, which is intended to prevent big banks from gambling with taxpayer-insured money and has been one of the most disputed parts of Dodd-Frank.
Also at stake are the rules governing the new Financial Stability Oversight Council, which will determine which financial firms other than banks are so big and risky that they warrant additional oversight. If the council determines that a firm poses a real risk to the system if it melts down, the firm will have to meet certain capital, liquidity and leverage requirements, or else the council will be responsible for breaking the firm up.
Such rules are intended, in part, to prevent "Too Big to Fail" from happening again — having firms that are so big and intertwined with the rest of the financial market that the government must step in to bail them out if they're melting down. But there are already indications that some officials believe that more has to be done to prevent risky bank meltdowns and taxpayer bailouts.
Dan Tarullo, one of the governors on the Federal Reserve Board, has called for regulators to impose stricter capital requirements on banks — which could possibly require additional legislation. The new director of the FDIC, Tom Hoenig, has long pushed for big banks to be broken up.
It's unclear whether Obama and his allies will have the appetite to do more when Dodd-Frank hasn't been finalized. Certainly there is some bipartisan interest in examining some of these questions, which could fuel proposals to modify or add to Dodd-Frank. As my colleague Danielle Douglas reported this month, "The Senate unanimously passed a bill that would direct the Government Accountability Office to examine the economic benefits large banks receive for being 'too big to fail,' " co-sponsored by the unlikely duo of Sen. David Vitter (R-La.) and Sen. Sherrod Brown (D-Ohio).
But Obama will be juggling many competing priorities from the very start of his second term — the budget, immigration and, he promises, climate change. His new Treasury Secretary, Jack Lew, is a fiscal expert with little experience in financial regulation, though he had a brief stint on Wall Street. And given the fact that Dodd-Frank has been enshrined in law, there may be the sense that the administration can't linger on Wall Street reform much longer, particularly when banks will argue that strict new rules will hurt the nascent recovery.