SPECIAL REPORT JULY 21, 2020 Ten Years of Dodd-Frank and Financial Reform OBAMA’S SUCCESSES, TRUMP’S ROLLBACKS and FUTURE CHALLENGES - II - Table of Contents INTRODUCTION .......................................................................................... 1 Dodd-Frank is Important and Relevant to Today’s Social Upheaval ........................... 1 The Dangerous Deregulation of the Financial Industry ............................................ 2 Financialization .................................................................................................... 5 The 2008 Crash and its Costs 6 Re-regulating the Financial Industry: The Dodd-Frank Act and the Obama Administration .............................................................................. 9 The Trump Administration Adopts Wall Street’s Deregulation Agenda ..................... 10 No Evil Required: Just the Siren Song of Market and Competitive Pressures........... 13 THE DODD-FRANK ACT ..........................................................................15 The Dodd-Frank Act was a Bipartisan Bill that Resulted from an Unprecedented Open and Public Process ............................................... 15 Dodd-Frank Act Goals ......................................................................................... 18 Key Components of the Dodd-Frank Act ............................................................... 19 Prudential Regulation .................................................................................. 19 Establishment of CFPB to Protect Financial Consumers from Predators ........... 21 Creating FSOC to Address Systemic Risk and Shadow Banking System............ 22 Volcker Rule to Address Proprietary Trading by Banks ..................................... 22 Reform Securities Markets to Increase Investor Protection .............................. 24 Derivatives Regulation .................................................................................. 26 The Dodd-Frank Act Delegated to Regulatory Agencies ......................................... 28 THE DODD-FRANK ACT UNDER THE OBAMA ADMINISTRATION .....29 Prudential Bank Regulation ................................................................................. 29 Capital, Liquidity and Leverage Standards, Including Enhanced Prudential Standards for Megabanks ........................................................... 29 Stress Tests .................................................................................................. 31 Resolution Plans, aka “Living Wills” .............................................................. 31 Orderly Liquidation Authority ......................................................................... 32 Volcker Rule ....................................................................................................... 32 Consumer Protection .......................................................................................... 33 Investor Protection .............................................................................................. 34 Investment Advice ........................................................................................ 34 Credit Risk Retention .................................................................................... 35 Whistleblower Programs ................................................................................ 35 Derivatives ......................................................................................................... 36 Derivatives Market Structure Improvements and Trading and Clearing Requirements ......................................................................... 36 Margin for Uncleared Swaps .......................................................................... 37 Swap Dealer Business Conduct Standards ...................................................... 38 - i - Cross-Border Activity ..................................................................................... 39 Addressing Systemic Risk ................................................................................... 40 Entity Designations—MetLife, AIG, Prudential, GE Capital .............................. 40 Activity Designations—Recommended More Robust Money Market Fund Regulations to SEC ..................................................................................... 41 Office of Financial Research .......................................................................... 41 The Obama Administration’s Unfinished Agenda .................................................. 42 Speculative Position Limits ........................................................................... 42 Executive Compensation ............................................................................... 42 Credit Rating Agencies .................................................................................. 42 THE DODD-FRANK ACT UNDER THE TRUMP ADMINISTRATION .... 44 The Treasury Department’s Review of Regulations Was a Roadmap for Widespread Deregulation ................................................................................ 44 Prudential Standards .......................................................................................... 48 Capital and Liquidity Requirements ............................................................... 48 Undermining the Credibility of Stress Testing ................................................. 49 Reduction of Living Will Requirements .......................................................... 49 Volcker Rule ....................................................................................................... 50 Changing the CFPB from Consumer Protection to Predator Protection ......................................................................................... 51 Undermining Investor Protection ......................................................................... 53 Finalizing a Flawed Regulation Best Interest .................................................. 53 Threatening Whistleblower Protections ........................................................... 54 Undermining Derivatives Reforms ........................................................................ 54 Proposal to Overhaul SEF Regime .................................................................. 54 Reducing Margin Requirements..................................................................... 54 Proposed Weak Cross-Border Rules ................................................................ 55 Gutting the Financial Stability Oversight Counsel .................................................. 56 Abandoning Entity-Designation Authority ....................................................... 56 Abandoning Activity-Designation .................................................................. 58 De Facto Killing the Office of Financial Research .......................................... 58 WHAT’S NEXT FOR FINANCIAL REFORM, INCLUDING BEYOND THE DODD-FRANK ACT? ................................59 Reversing Dangerous Trump-Era Deregulation ...................................................... 59 Finishing the Unfinished Obama-Era Business ..................................................... 60 Financial Reform Beyond the Dodd-Frank Act ...................................................... 60 CONCLUSION ..............................................................................................67 APPENDIX: Republican-Sponsored Amendments to S. 3217 Adopted by the Senate ............................................................................................... 68 Citations .................................................................................................................... 71 - ii - INTRODUCTION Dodd-Frank is Important and Relevant to Today’s Social Upheaval As the country faces social upheaval, political unrest and economic turmoil, it is important to discuss and reflect on the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd- Frank Act”) because “financial stability,” “financial reform” and “financial rules” are themeans to achieve some of the nation’s most important social, political and economic goals. Those goals include a strong and stable financial system that: • Reduces inequality while creating economic security, opportunity and widespread prosperity for all people, • Supports the productive economy, • Produces sustained, durable and broad-based economic growth, and • Protects investors, consumers, workers and the environment. Those goals, however, are undermined by an economic system that does not work for the vast majority of Americans because, among other things, the financial system is too often awealth-extraction mechanism for the few rather than a wealth-creation system for the many. This is the result of too many—certainly not all, but too many—in the financial sector using their economic power to buy political power, which they then use throughout the policymaking process to protect and increase their economic power, usually at the expense of everyone else, including their competitors and others in the financial sector. The financial sector thereby undermines and corrupts democracy by hijacking the government to serve its own ends, while also tilting the financial system decidedly in its favor. Making all of that worse, the pandemic, and the economic crisis it has caused, have exposed the structural inequalities embedded in our economic and financial systems and how they egregiously and disproportionately impact Black