Was Trump's 2018 repeal of Dodd-Frank a good idea?

Well, as we have seen of late, 3 bank failures, I'd say no, and these were Silvergate Bank, Silicon Valley Bank, and Signature Bank.

Now, I don't know if these bank failures would have not failed if Dodd-Frank had not been repealed, but I'm mighty suspicious and Elizabeth Warren thinks so, and she knows more about this than I do. Of course, Republicans are just going to call her 'Pocahontas', right? Am I right? Do any of you on the right respect her knowledge?

Now then, let's discuss Dodd-Frank.

The Dodd-Frank Wall Street Reform and Consumer Protection Act, also known simply as Dodd-Frank, was passed by the US Congress and signed into law by President Barack Obama in 2010. The act was a response to the financial crisis of 2008 and aimed to reform the financial sector by creating more transparency, accountability, and consumer protection.

Dodd-Frank had several key provisions, including:

1. Creation of the Consumer Financial Protection Bureau (CFPB), a federal agency dedicated to protecting consumers in the financial marketplace.
   
   
2. Regulation of the derivatives market, which had been largely unregulated prior to the financial crisis.
   
   
3. Greater oversight of "too-big-to-fail" financial institutions, including the creation of the Financial Stability Oversight Council (FSOC) to monitor and mitigate systemic risks.
   
   
4. Limits on the ability of banks to engage in risky trading activities with their own funds (the "Volcker Rule").
   
   
5. Strengthening of the regulatory framework for mortgage lending and servicing.

The repeal of Dodd-Frank's provisions under the Trump administration has been controversial, with critics arguing that it has weakened financial regulations and put consumers and the economy at risk. The primary danger lurking in the banking system since the repeal is the possibility of another financial crisis due to the lack of oversight and regulation of certain risky financial activities. Additionally, the repeal has led to a rollback of consumer protections, which could lead to predatory lending practices and other forms of financial abuse. However, it is important to note that some of the provisions of Dodd-Frank remain in place, and state-level regulations may also provide additional protections for consumers.

In this scholarly article, noting that no legislation, given they undergo back and forth horse trading among Republicans and Democrats; adding this, taking away that, amendments to the bill, and so forth, no bill is ever going to be wonderful for either side. Here is one academic look into the good and the bad, noting that DF was passed bipartisan, and repealed bipartisan, with Dems heavier on the 'for it' side, and Republicans heavier on the 'against it' side.

This is a quick summary of the paper, it goes it do much more depth, worth a read.

: https://muse.jhu.edu/article/647066

1. Clear wins. These are areas where Dodd-Frank has either increased both economic growth and financial stability or enhanced one of them at a minimal cost to the other. We argue that Dodd-Frank’s most valuable contributions have included higher prudential standards, including for capital; the new resolution authority that has manifested in the single-point-of-entry (SPOE) strategy; creating the CFPB; and subjecting derivatives transactions to greater transparency and oversight. Higher capital requirements make institutions more resilient to financial stress events and crises. The Federal Deposit Insurance Corporation’s (FDIC) SPOE approach establishes standard procedures for safely winding down a failed institution, improving financial stability and addressing the “too big to fail” issue. The CFPB consolidates oversight responsibilities, minimizes risky gaps in the regulatory infrastructure, and has improved protections for consumers. Derivatives exchange and clearing brings greater transparency to a major source of financial transactions that used to be largely unregulated. Even though these are all “clear wins” in our assessment, there is still room for improvement in all four areas.
2. Clear losses. These are areas where Dodd-Frank has either harmed both financial stability and economic growth or was detrimental to one with limited gain to the other. Two new restrictions fall into this category: requiring the Federal Reserve to make emergency loans available to an entire category of institutions rather than a single firm, and forcing the FDIC to seek and obtain a joint resolution from Congress before providing temporary liquidity guarantees on certain kinds of debt. These provisions can be expected to reduce financial stability during periods of stress with no corresponding effect of enhancing economic growth.
3. Costly trade-offs. Other provisions are harder to assess, and seem to achieve some benefits but with significant costs to efficiency and economic growth. In particular, the Volcker Rule, which bans commercial banks from engaging in proprietary trading, and the Lincoln Amendment, which prohibits entities engaged in swaps from receiving federal assistance, create costly trade-offs. Critics have complained that the Volcker Rule is complex, ambiguous, and expensive, making it difficult for banks to adhere to its requirements and for regulators to implement and oversee it. Others suggest that the Lincoln Amendment’s goals can be achieved by the Volcker Rule, making the Lincoln Amendment redundant and its cost and regulatory burdens unnecessary.
4. Unfinished business. In other areas, Dodd-Frank has made some progress, but didn’t go far enough. Important improvements could still be made through greater regulatory consolidation, heightened authority for the Financial Stability Oversight Council (FSOC), and more independence for the Office of Financial Research (OFR).
5. Too soon to tell: Finally, other provisions have created uncertain trade-offs between stability and economic growth, and it’s too soon to accurately gauge their impact on the economy and financial system. New requirements and standards for leverage ratios, capital buffers, stress testing, liquidity, and long-term debt holdings all fall into this category.

And, with three bank failures by banks who no longer need to conform to Dodd-Franks safety regulations, that each bank have enough funds to cover cash needs in the event of a crisis, that each bank be subject to a stress test, designed to ferret out their weaknesses so they can be rectified, etc., with SVB bank having made risky investments which I strongly suspect it would not have been allowed to make under Dodd Frank, as were the other two banks that failed, recently, seems to me we need to restore Dodd-Frank, or come up with something even better, wiser.

Elizabeth Warren: Silicon Valley Bank Is Gone. We Know Who Is Responsible.

https://www.nytimes.com/2023/03/13/opinion/elizabeth-warren-silicon-valley-bank.html

No one should be mistaken about what unfolded over the past few days in the U.S. banking system: These recent bank failures are the direct result of leaders in Washington weakening the financial rules.

In the aftermath of the 2008 financial crisis, Congress passed the Dodd-Frank Act to protect consumers and ensure that big banks could never again take down the economy and destroy millions of lives. Wall Street chief executives and their armies of lawyers and lobbyists hated this law. They spent millions trying to defeat it, and, when they lost, spent millions more trying to weaken it.

Banks like S.V.B. ‌— which had become the 16th largest bank in the country before regulators shut it down on Friday ‌—‌ got relief from stringent requirements, basing their claim on the laughable assertion that banks like them weren’t actually “big” ‌and therefore didn’t need strong oversight. ‌
[...]
S.V.B. suffered from a toxic mix of risky management and weak supervision. For one, the bank relied on a concentrated group of tech companies with big deposits, driving an abnormally large ratio of uninsured deposits‌. This meant that weakness in a single sector of the economy could threaten the bank’s stability.

Instead of managing that risk, S.V.B. funneled these deposits into long-term bonds, making it hard for the bank to respond to a drawdown. S.V.B. apparently failed to hedge against the obvious risk of rising interest rates. This business model was great for S.V.B.’s short-term profits, which shot up by nearly 40 ‌percent over the last three years‌ — but now we know its cost.

As a concerned citizen regarding the financial health of the nation, I urge each and every one of you to write to your congressperson and senator and urge them to restore Dodd-Frank, or pass some similar legislations which will protect America from zealous bankers making risky investments with our deposits, and whatever precautions are necessary to assure that Americans can feel safe with their money in the bank.

This is not a right or left issue, this is a common sense issue. Yes, the FDIC insures deposits up to $250k, which covers most people, but it doesn't cover millions of businesses who have much larger deposits, and if they fail en masse, it's soup kitchens and bread lines all over again. Ya think?

Be sensible, be wise, urge your congressperson to restore Dodd Frank.

 

The bank got caught with too many long term bonds at low yield. The inflation caused interest rate hikes which made the low yield bonds impossible to get rid of without losing a fortune. Government spending caused the inflation, which caused the response of interest rate hikes, which caused the bond investments to lose value, which caused the banks to be caught with their pants down.

 

SVB went down from a old fashion traditional bank run.... the other two banks that have gone down in the last 190 days were crypto heavy portfolios. If you allow commercial banks to act the same as investment banks, welcome to the casino bailout game.

Something else that is disturbing is that bonuses were paid out Friday, just hours before the feds took it over.....that's just seriously wrong.

 

Repealing dodd-frank didn't force SVB to make stupid decisions. They did that all on their own.

This idea that removing regulations is the cause is just a pathetic attempt to excuse SVB and shift the blame to trump....it's pretty sad and pathetic. Trump didn't force SVB to be idiots, they did that all on their own.

Unless of course someone can point out how repealing dodd-frank forced SVB to make the decisions that lead to this.....

 

@Patricio Da Silva @Hey Now @Texan

the bonuses are the clue. the svb executives knew they were going down, and threw one last middle finger at us all.

i thought that dodd frank was very weak, bernie agrees, and said that he would revisit the issue as banking chair, but i suppose that was stopped by the narrow majority of repubs and manchin/sinima.

it is now past time to revisit this issue and screw the banks, REGULATE the hell out of them, and fuggitabout the "too big to fail" foolishness, break up the banks into such smaller fragments that it will take longer than the next repub president for them to reassemble.

if $250k is not enough to cover the accounts of these "smartest guys in the room," esp "conservatives" and ayn randers like thiel and musk(thiel's hedge fund closed their accounts thursday night and then recommended that their clients do the same, triggering the run) they should have been smart enough to keep their accounts under that amount. i somehow manage to open an account at a new bank when i reach about that amount and I'm not even a billionaire.

 

no one "forced" scb to make these smart buisiness decisions, but the weakening of dodd frank certainly allowed them to be as fraudulently stupid as most capitalists are.

 

Thread winner

 

In the end it's the bank's fault. Period.

 

SVB would have been subjected to stress testing and would have had to do something a long time ago to prevent this collapse.

 

I don't know if Dodd - Frank would have prevented it, but one thing we know, - Trump had no idea what Dodd-Franks was all about.

 

Except for your ideologically based accusation of blaming inflation on government spending you have it right. The bank realized their bond investment made them cash poor because they needed to wait for the bonds to mature to get full value. So they made a clumsy statement about the need for a capital raise which set off a run on the bank.

Bigger picture, had the provisions applying to smaller regional banks not been repealed they would had more regulatory scrutiny and a higher mandatory capital requirement which would have prevented this situation. As far as blame goes, the legislation allowing the Dodd-Frank rollbacks was passed with bipartisan support. Though progressive Dems opposed it vehemently.

 

If this thing could be tied to anything specific from what Trump rolled back, the left would be parading every economist in the world out to explain very explicitly and in no uncertain terms just how that regulation rollback created this. Every Democrat politician would also be following suit. Every leftist on this board would seemingly become an economist overnight, reciting the specific regulation and acting as if anyone doesn't know that they are a functional illiterate.

That is not occurring. Instead, we keep getting explanations such as "some economists say" or "the most germane here are the limits to risky practices and maintaining a level of liquidity", or " I don't know if these bank failures would have occurred but..." which basically says nothing specific. If there were an actual limit that were rolled back that created this, your sources would have been very specific and thus so would you. There would not be any "I don't know if but" to it. You would know every detail imaginable. If there were a level of liquidity that changed that allowed this you would know that level to the exact number and how the change created this because your source would have taught you this in very explicit terms.

On top of that, when Trump rolled back regulations, those were the Dodd Frank Regulations. Well Barney Frank, the Democrat Senator whose name is on that bill and who is also on the board of directors of the one of the failed banks, says very clearly that this had nothing to do with the 2018 rollback of regulations.

Barney Frank blames crypto panic for his bank's collapse. Elizabeth Warren blames Trump. - POLITICO

"Frank said Sunday that he didn’t think changing the threshold to $250 billion from $50 billion “had any impact"

I think, if it hadn’t been for FTX and the extreme nervousness about crypto, that this wouldn’t have happened — even to SVB or to us,” he said. “And that wasn’t something that could have been anticipated by regulators.”




Barney Frank, being the literal architect of the Dodd Frank Legislation, and on the board of one of the failed banks, is the singular person who would best be in position to know, and as a dedicated liberal Democrat, is most certainly not running interference for Trump.

All we are getting from the so called "experts" willing to weigh in are vague generalities, and in turn, all we are getting from folks like yourself is the same vague generalities and implication. The exact same principle is in play with the train rollover in Ohio. If that could be truly pinned to a Trump regulation rollback, that is literally all that we would be hearing. Instead they just smarmily make vague implications but never actually explain anything.

 

It has been. https://www.businessinsider.com/sil...apse-what-is-dodd-frank-trump-rollback-2023-3

 

Anything to blame Trump. For **** sakes

 

Some Democrats predictably have TRIED to pin this to Trump.

When Trump rolled back regulations, those were the Dodd Frank Regulations. Well Barney Frank, the Democrat Senator whose name is on that bill and who is also on the board of directors of the one of the failed banks, says very clearly that this had nothing to do with the 2018 rollback of regulations.

Barney Frank blames crypto panic for his bank's collapse. Elizabeth Warren blames Trump. - POLITICO

"Frank said Sunday that he didn’t think changing the threshold to $250 billion from $50 billion “had any impact"

I think, if it hadn’t been for FTX and the extreme nervousness about crypto, that this wouldn’t have happened — even to SVB or to us,” he said. “And that wasn’t something that could have been anticipated by regulators.”

Your own link says the same thing. Your link also predictably is very short on details in terms of an explanation. All you have presented is something saying vaguely that "some" Democrats blame, when in truth, if it were real it would be far more than "some". The same thing happened with the train rollover in Ohio. When you don't have the goods, be vague.

 

If he is on the board then of course he will deny it, because banks, including this one, lobbied heavily to have Trump roll back those regulations.

I am not arguing Dodd Frank rollback was the reason though, because it seems like they committed a rookie mistake of investing short term deposits on long term bonds and then ended up in a situation where they couldn't convent the money back to cash, Same thing happened in the 1980s savings and loan collapse, which actually WAS a direct result of de-regulation.

 

How does denying it absolve him from any responsibility? Wouldnt it be a convenient excuse for him to use?

The truth is, he is in the real world now, and the real world, especially banking requires honesty or the prospect of facing jail time. It is only in the world of politics that spin reigns supreme over reality. This thing is going to be gone over with a fine tooth comb by regulators, and in his current position, unlike politicians, he cannot be spouting untruths that will clearly be uncovered when investigators do go through with that fine-toothed comb.

 

Not convenient if he was involved in lobbying to have it rolled back.

They can use a fine comb, but the reason for the failure is already known (as I explained in the previous post), and the board members are more at fault than anyone because they committed a basic error, the same error which caused the 1980s S&L crises. Of course removing regulations, allows banks to use reckless approach to investing their clients money, so there is that. So its possible that people like Barney in the board first lobbied for deregulation, so they could make riskier moves, and then those risky moves ran the bank in to the ground.

 

You explained nothing. You gave the same vaguery as every other of the relatively few Democrats that are trying to imply that it is due to regulation rollback. If the Democrfats had the goods, they would be parading every economist possible front and center to explain in great detail how this relates, but that is undeniably NOT occurring. You would in turn all of a sudden be an "expert" on all things banking economics as a result. Instead you throw out these vagueries and pretend it is saying something concrete.

Deep down, you know as well as I that Barney Frank trumps any Democrat trying to say that it was caused by the rollback. This will be determined very clearly by regulators and even Congress, and in his position, he cannot lie and spin like a Democrat politician is free to do, because it will be uncovered.

 

Which they could have done anyway regardless of any regulation in place.

Nobody can argue that repealing dodd-frank was the cause. That forced nothing on SVB. They made the decisions that lead to this all on their own.

This is nothing but a pathetic desperate attempt to blame trump. Why does this have to be the sole goal of the left? Just be honest, it's really not that hard.

 

I am not sure if it was Trump's actions or the Republican head of the fed that wanted to raise interest rates to cool a hot Biden economy

Definitely needs to be looked at to see what needs to be changed to prevent this in the future if possible

 

Except that I explained twice that I do not think it was the reason. I said very clearly it failed because the board made a basic error, the same error as was made in 1980s. I don't know why I said it for the 3rd time.....

Everything, and I mean 100%, to you revolves around partisan blame game which it probably why you can't see what other people are saying.

 

that is the point, without regulation they didn't

 

I applaud where you correctly pin the blame on the board making an error, but then you just had to add in..."Of course removing regulations, allows banks to use reckless approach to investing their clients money, so there is that."

Therein lies the vaguery to which I referred that says basically nothing. You are making an implication without actually saying it. You are hiding behind that implication to act as if you are being fair-minded, but there is nothing fair-minded about a bogus implication. There is that.

You are only pretending to not be playing the blame game. Your vague implication says otherwise.

 

Bullshit. Capitalist organizations love to fiddle with the letter of the law and letting them return to their unsupportable practices was a fool’s errand, and trump gave them carte blanche to to just that.