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Dodd-Frank reformers are stymied by the issue of “too big to fail”

3 min read

Modern Money

Since virtually the day the Dodd-Frank Wall Street Reform and Consumer Protection Act was enacted, some policymakers and market participants have been working to see elements of the law changed or the entire legislation repealed. Those constituencies have been forced to adjust their tactics in recent months because of unique political winds swirling around the issue of major financial institutions being seen as “too big to fail.”

Lawmakers on both sides of the aisle have voiced their concerns that Dodd-Frank does not do enough to remedy what they see as the threat posed by some of the nation’s largest financial institutions. Panelists during the “Washington Outlook” session at the 38th Annual International Futures Industry Conference explained that the bipartisan movement to break up the big banks is making it tricky for the industry to advocate any legislative changes to Dodd-Frank.

“You have this bizarre left-right alliance that is coalescing around “too big to fail,’ ” explained┬áJimmy Ryan from Elmendorf | Ryan. “For institutions that have problems with Dodd-Frank and want to see changes, going up to the Hill and asking for them is a story of ‘don’t ask for what you want.’ If you put a Dodd-Frank-related bill on the floor of the Senate, you are going to have somebody offer an amendment to break up the big banks. … People just don’t want to go there.”

Large financial institutions and their advocates in Washington, D.C., thought the issue of “too big to fail” was settled by the Orderly Liquidation Authority detailed in Title II of Dodd-Frank. However, skeptics question how successful such an apparatus would be in the event of a crisis and recent comments from Attorney General Eric Holder about banks being “too big to jail” returned the issue to the headlines.

“A lot of [people] at large financial institutions are now focused entirely on this threat of bills to break up the biggest banks,” said Ben White, chief economic correspondent for Politico. “We went from a very fringe issue … to two or three months now of lobby time and resources and people taking the threat more seriously.”

In addition to Ryan and White, the panel also featured CFTC Commissioner Scott O’Malia, CME Group Executive Chairman and President Terry Duffy and Allison Parent, director of government policy and finance for Barclays. Futures Industry Association President and CEO Walt Lukken moderated the discussion.

More tidbits from the the panel.

Gensler on the go? During a lightning round of questions, the panel was asked if Gary Gensler would still be the chairman of the CFTC in one year. O’Malia abstained, but every other panelist answered “no.”

O’Malia on eliminating regulatory uncertainty: “We need to be absolutely transparent and clear about what we we want, when we want it and in what form. We can’t play gotcha with the industry.”