02 August 2014

Trading & Risk Technology

Derek Klobucher - Sybase Inc.

29 | posts 88,956 | views 0 | comments

Dodd-Frank Stands Technically Corrected and Small Banks Lose

17 December 2012  |  2947 views  |  0

“People got a bit lax,” Queen Elizabeth II said last week of the time leading up to the financial crisis. “Perhaps it was difficult to foresee.”

The U.K.’s monarch also lamented that her nation’s Financial Services Authority “didn’t have the teeth” to curb risky business through 2008. And dental enhancements for global banking regulators continue to be a favorite topic from Brussels to Washington, D.C.

Mario Draghi, president of the European Central Bank and The Financial Times’ recently-named Person of the Year for 2012, advocated broader authority for the European Union following a breakthrough arrangement on Thursday. Eurozone finance ministers hammered out a deal to make the ECB the region’s central banking overseer.

“The ‘single supervisory mechanism’ (SSM) is just the first, and easiest, step in a banking union plan designed to prevent a repeat of the financial contagion that dragged down banks and sovereigns in the debt crisis,” The Financial Times said. “The next phase -- agreeing on a common resolution authority to oversee the orderly winding down of insolvent lenders -- is likely to be even more fraught.”

Technical Difficulties

But slow progress is still progress, as supporters of the Dodd-Frank Wall Street Reform and Consumer Protection Act know all too well. November’s election made clear to Republican lawmakers that a repeal of Dodd-Frank isn’t going to happen, so they’re turning to “technical corrections” of the regulatory series meant to rein in financial-crisis-causing behavior of too-big-to-fail banks.

“As the act was moving toward passage its Democratic authors, Senator Chris Dodd of Connecticut and Representative Barney Frank of Massachusetts, said there would be a future bill to make corrections,” reporter Cheyenne Hopkins wrote, brilliantly describing the situation in her Bloomberg article last week. “Dodd-Frank critics had hopes for a technical corrections bill even before the law was signed by President Barack Obama.”

But what constitutes a technical correction is in the eye of the beholder, as Hopkins noted. Dodd-Frank proponents see technical corrections as a way to hone and enhance its regulations, while opponents attempt to co-opt technical corrections in order to undermine the entire system.

Fighting for the Little Guy

But massively ambitious regulatory schemes for too-big-to-fail banks -- Global Systemically Financial Institutions (GSIFIs) -- are creating a laundry list of non-revenue-generating compliance requirements. Such obligations strain small banks, according to Dwight Utz, president and CEO of Engelhard, N.C.-based ECB Bancorp.

He and his board recently decided to sell the company.

“The regulatory environment played a role in that,” Utz told Finextra this month. “It’s an expense that I’m not sure a lot of people outside of the industry understand.”

Picking Up the Slack

Small banks are the ones that should have picked up the slack when big banks failed in 2008. Federal bailouts saved GSIFIs from themselves, and it would be tragic if the regulations meant to keep GSIFIs in line helped destroy small banks that played by the rules.

It would be equally tragic if Dodd-Frank lost its teeth and a similar financial crisis played out again. Here’s hoping that no one technically correcting Dodd-Frank gets lax.

Related Articles:

Queen talks of ‘lax’ bankers and ‘toothless’ regulators behind financial crisis” by Gordon Rayner

Draghi’s rallying cry for new EU powers” by Michael Steen and Lionel Barber

Technical Fixes Prompt Suspicion From Dodd-Frank Backers” by Cheyenne Hopkins

 

TagsRisk & regulation

Comments: (0)

Comment on this story (membership required)
Log in to receive notifications when someone posts a comment

Latest posts from Derek

Dodd-Frank Stands Technically Corrected and Small Banks Lose

17 December 2012  |  2947 views  |  0  |  Recommends 0 TagsRisk & regulation

Too Big To Fail Makes a 'Fine' Mess

13 December 2012  |  2392 views  |  0  |  Recommends 0 TagsRisk & regulation

Lighting Up Dark Pools and Dissing Dodd-Frank

21 November 2012  |  3540 views  |  0  |  Recommends 0 TagsTrade executionRisk & regulation

Regulatory Reform: The System, Not The Software

16 November 2012  |  2224 views  |  0  |  Recommends 0 TagsTrade executionRisk & regulation

Devil in Dodd-Frank's Details

04 October 2012  |  2606 views  |  0  |  Recommends 0 TagsTrade executionRisk & regulation
name

Derek Klobucher

job title

Financial Services Writer and Editor

company name

Sybase Inc.

member since

2011

location

Dublin

Summary profile See full profile »
Generate and edit thought leadership content for Sybase's annual Capital Markets Guide, quarterly...

Derek's expertise

What Derek reads
Trading and Risk Technology
Derek's blog archive
2012 (11)2011 (18)

Who is commenting on Derek's posts