One Dodd-Frank Architect Explains Why He Fears Its Dismantling

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The sun rises over the New York Stock Exchange before the opening of trading in 2010 in New York. (Spencer Platt/Getty Images)
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President Trump has promised to dismantle the Dodd-Frank Act that Congress passed in 2010 to regulate Wall Street in the wake of the financial crisis. Trump says the law makes it too hard for businesses to borrow.

Michael Barr, an assistant treasury secretary in the Obama administration, disagrees. He tells Here & Now‘s Jeremy Hobson that Dodd-Frank created important consumer regulations, and that taking those regulations apart could lead to another financial disaster.

Interview Highlights

On where the push to dismantle Dodd-Frank is coming from

“It’s coming from a mix of sources. First of all, many in the financial sector never gave up the fight after Dodd-Frank. They kept trying to litigate against it, to lobby against it, and so, in one sense, this is just a continuation of a long fight. …I think the U.S. financial system is extremely healthy, it’s strong, the banks are making more money and more importantly, for the rest of us, they’re lending to the economy, which is you want them to do. So I don’t think it makes any sense in an economic matter to roll back these kinds of reforms.”

On the most important pieces of Dodd-Frank

“First of all, the Republicans in Congress and many other financial sector folks have been trying to gut the Consumer Financial Protection Bureau. And I think that would be a horrible mistake, because the consumer agency really has been helping American families, it’s saved over $12 billion in fees and other illegal activity and returned those funds to the American people.

This second big area is the ability to regulate big Wall Street firms, firms like AIG that helped cause the financial crisis. The administration is talking about stopping the government’s ability to regulate those non-bank firms. I think that would be a big mistake.

The third area that they’re going after is the orderly liquidation authority. This is kind of technical but it’s the way that the government would wind down a firm like Lehman Brothers if into distress in the future, rather than sending it into bankruptcy which would blow up the economy or bailing it out, which nobody wants to see ever again.

And I’d say another big area of reform that they’ve been targeting is derivatives reform, this is the kind of activity that AIG and others were engaged in that helped accelerate the financial crisis. They’re talking about rolling back those reforms.”

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On whether the U.S. should scale back regulations

“If you look at the set of reforms that have been going on since the financial crisis, the U.S. and other regulators around the world have been working closely together to try and generate a level playing field with high standards, and you see that in the U.S. and you see it in Europe. And I think that that makes all of our economies both safer and also better able to lend and engage in productive activity.”

On Trump’s statement that regulations make it hard for business to borrow money

“I think it was quite striking that the president referred to his friends not being able to get loans, that’s not what this is about. This is about making the financial system work for the American economy for American households as a whole, for American businesses as a whole, not for the president’s friends. And if you look at the broad measures of economic activity, if you look at the larger measures of lending in the economy, lending has been going up year after year after the enactment of the Dodd-Frank act. It’s been growing faster than the economic growth of the country as a whole. It’s strong. The basic argument that we need to roll back reforms to get more lending doesn’t make any sense.”

On how to engage people on financial matters

“I think there are many elements people can understand. First of all, the first roll back Republicans undertook was this measure that now lets oil companies make secret payments to foreign governments. I think anybody can understand that doing that is not in the interest in American households. Where if you look at consumer protection, they’ve been talking about firing Richard Cordray, who has just been an absolutely outstanding director for the Consumer Financial Protection Bureau, and they’re talking about weakening that agency that helps people protect themselves against abuses in the mortgage market or from debt collectors or credit card companies. I think people can understand that. I don’t envy the Trump administration trying to speak this past the American people.”

On what should be revised in Dodd-Frank

“In terms of Dodd-Frank itself, there are always technical measures that you could do to make it work better. And I think in particular for the very smallest banks, community banks, there are ways of clarifying and protecting them from the additional burden not just of the Dodd-Frank act, but more broadly of bank regulation, of know your customer rules, of bank secrecy act revisions. There are measures you could take that are very targeted that make sure that the very smallest banks in our economy can continue to thrive, and that’s where I would focus energy, not on regional banks, not on very large banks, not on derivative regulation, not on liquidation authority, and certainly not on the Consumer Financial Protection Bureau.”

On what would happen if Dodd-Frank were pulled back dramatically

“I don’t think that it’s easy to predict the future in any respect, and I certainly think we ought to be humble about the ability to predict the next financial crisis. What I will say is this: Rolling back Dodd-Frank will set the conditions for whenever the next financial crisis comes, and if they succeed in rolling back to the extent they’re talking about, they will make that financial crisis much more likely to come and much more severe and brutal in its consequences if it does come.”

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