Earlier this week the president called a number of U.S. financial regulators to the White House to get an update on the implementation of the signature federal legislative response to the financial crisis that was signed in to law in July 2010. The Dodd-Frank Wall Street Reform and Consumer Protection Act has been getting mixed reviews in terms of its achievements thus far and some have described it as lackluster. According to a recent NPR report about 40 percent of the rules are completed, more than 50 percent of the regulatory deadlines were missed, some progress has been made on the regulation of derivatives, the Consumer Financial Protection Bureau is up and running, the "Volker rule" on proprietary trading is not complete and the definition and process for handling "too big to fail banks" remains incomplete.
While some have reported that there has been a sign of increased momentum on the side of the regulators in recent months it remains to be seen how long they will be able to keep it going. The public attention to the impact and fallout from the crisis has also been waning and for the most part fallen off the front pages. Absent a consistently strong push from political leaders, civil society and other citizens it is difficult to imagine how this momentum can be sustained.
A well-documented reality is the role that the major financial institutions continue to play in the rulemaking process and the massive amounts of money that they have expended in federal lobbying and political contributions. Their large teams of lobbyist and legal consultants have been successful in slowing down the process in numerous instances and when necessary have filed lawsuits to interrupt the implementation of some rules. On the amount of money spent, the Center for Responsive Politics says that the financial, insurance and real estate sector spent about $6.8 billion in lobbying and political contributions from 1998 - 2011. That was reported as $1 billion more than any other sector.
The establishment of the framework and the adoption of the laws, rules and regulations that protect the soundness and safety of the financial system and promote access to credit and financial services, are complex and challenging responsibilities. They have become more so in a globally integrated financial system that is susceptible to markets that trade round the clock and a network that is up and running every day of the year. It requires cooperation across sovereign boundaries and regions and the engagement of numerous jurisdictions.
The approaching fifth anniversary of the near meltdown would be a good time for all those involved in this process to recall the scary and nigh terrifying circumstances of September 2008 in Washington, New York and numerous other capitals and financial centers across the world. The calls and commitments to put in place needed reforms and platforms were heard from both the public and the private sectors across numerous jurisdictions. That resolve must also be remembered and renewed.
The global financial system, which I have previously described as like the vascular system in the human body, operates a global network that touches the lives of billions of people every day. They have come to count on it for numerous and diverse transactions and services and are quite often unable to complete many of these without the network.
The crushed dreams and lost opportunities that many have suffered in the wake of the crisis has left far too many scars. One has only to listen to the stories of the unemployed and underemployed, those who have deferred retirement, lost their homes or are still struggling to get pay their mortgages to appreciate the depth of those wounds. Restoring and rebuilding trust for these millions must remain as a foundational component and vision for any reform efforts that are undertaken. A hint of recovery in the housing market that is described in the business media as good for everyone from the investors to homeowners to the unemployed will not be enough.
The constant flow of stories about settlements, fines, investigation and convictions must be difficult for many in the major financial institutions to absorb. In response however, their leaders are still paying too much attention to media and advertising consultants and lobbyist when they should be paying more attention to the stakeholders who have lost so much.
Slogans and promises alone will not be the solution. We need to get the rules and regulations that respond to real needs and to the needs of communities across the country. The social purpose of the financial system and the institutions that operate in that space must be given priority over quarterly profit goals and expectations.
This would be a good time for all banks and their trade associations to work more constructively with regulators to keep the momentum going in the right direction, to restore confidence and rebuild trust.