The move ushered in a new era of oversight for firms that play in the financial markets but have largely escaped federal supervision. Life insurers, hedge funds and private-equity firms now can be regulated by the Federal Reserve. It is still unclear, however, exactly what the Fed will require of the firms.
At the New York conference, Lew attributed the recent activity to a shift in the way stakeholders now view financial reform. Some of the “alarmist thinking” about Dodd-Frank has faded, he said, and a consensus has emerged that “a coherent framework of rules will provide needed certainty.”
What has also emerged is sentiment that the 848-page law failed to end “too big to fail,” the perception that some big firms will always be bailed out by the government. Myriad bills from unlikely pairs, including Sens. Sherrod Brown (D-Ohio) and David Vitter (R-La.), have been introduced to force mega-banks to hold more money in reserves or to simply break up.
There may be little chance of Sens. Elizabeth Warren (D-Mass.) and John McCain (R-Ariz.) reinstating Glass-Steagall — the Depression-era law that prevented commercial banks from using customer deposits to trade securities. But their effort seems to be placing pressure on regulators.
“If we get to the end of this year and we cannot, with an honest, straight face, say that we have ended too big to fail, we are going to have to look at other options,” Lew said.
Officials at the Treasury declined to discuss exactly what those “other options” would be.
Industry groups insist that regulators must finish putting Dodd-Frank in place before piling on more regulation that could destabilize the fragile economic recovery.
Some of the congressional proposals “can undermine the innovative capacity and competitiveness of our financial system,” said Rob Nichols of the Financial Services Forum, a trade group representing the largest banks.
He said industry and regulatory initiatives have already gone a long way to improve the safety, stability and security of the nation’s financial system.
There is one provision that many proponents of financial reform point to as a clear success: the Consumer Financial Protection Bureau. Americans now have an independent consumer bureau to protect them from mortgage, credit-card and other lending abuses that ran rampant before and during the crisis. It did, however, take two years to confirm the agency’s director.