Dodd-Frank at 10: How regulation has (and hasn't) changed since law's passage

WASHINGTON — The Dodd–Frank Wall Street Reform and Consumer Protection Act became law on July 21, 2010. The sweeping reforms established a regime for protecting financial services consumers, tougher supervisory standards for big banks, new rules for swaps traders, procedures for unwinding failed behemoths, and much more.

The landmark law is still mostly intact 10 years later, but there have been notable revisions to federal bank regulatory policy along the way. They include a 2018 regulatory relief bill supported by Republicans and some Democrats that eased certain provisions of Dodd-Frank.

At various times over the past decade, regulators have used authority in the law — as well as preexisting authority — both to strengthen rules and to roll back key requirements such as the Volcker Rule.

The Federal Reserve's stress test process has evolved considerably in recent years, just as the central bank has implemented statutory changes to enhanced prudential standards for large banks.

The Supreme Court, meanwhile, ruled just last month that the leadership structure of the Consumer Financial Protection Bureau was unconsitutional.

Here is a sampling of regulatory policies that have changed since the passage of Dodd-Frank, as well as how some things have stayed the same.

With contributions from Brendan Pedersen, Hannah Lang, John Heltman, Kate Berry and Neil Haggerty.

President Trump Delivers State Of The Union Address
John Roberts, chief justice of the U.S. Supreme Court, from left, Elena Kagan, associate justice of the U.S. Supreme Court, Neil Gorsuch, associate justice of the U.S. Supreme Court, and Brett Kavanaugh, associate justice of the U.S. Supreme Court, sit during a State of the Union address to a joint session of Congress at the U.S. Capitol in Washington, D.C., U.S., on Tuesday, Feb. 4, 2020. President Donald Trump will try to move past his impeachment and make a case for his re-election in Tuesday's State of the Union address by taking credit for a strong economy, newly signed trade deals and an immigration crackdown. Photographer: Stefani Reynolds/Bloomberg
CFPB structure was ruled unconstitutional
The Consumer Financial Protection Bureau, first proposed by now-Sen. Elizabeth Warren, D-Mass., was perhaps the most consequential and hotly debated creation of Dodd-Frank.

Once its leadership was established, the bureau moved aggressively during the Obama administration, using its new powers to write rules and issue enforcement actions. Yet the agency under the Trump administration has eased off the gas pedal, delivering several regulatory relief victories for the industry, including gutting underwriting requirements for payday lenders.

The biggest change to the agency came just recently when the Supreme Court ruled that the CFPB’s single-director structure is unconstitutional, a major blow to the agency’s independence. The ruling struck a key provision of Dodd-Frank — that the CFPB director can only be fired “for cause” — that experts say could limit Congress’s ability in the future to create independent agencies shielded from political influence by the president.

Still, the high court’s 5-4 decision written by Chief Justice John Roberts stopped short of disbanding the agency altogether or invalidating the law that created it. Although Roberts wrote that the CFPB’s structure violates the separation of powers, the ruling left the agency and its past eight years of rulemakings intact.

Almost within a week of the decision, CFPB Director Kathy Kraninger said that the bureau’s past rules and other actions were still valid.

But many experts predict the CFPB will become even more politicized, influenced by whoever sits in the White House. Republicans in Congress have sought to pass legislation to create a multi-member commission to govern the CFPB, but such legislation faces an uphill battle in a divided Congress.
Former Deputy Attorney General Rosenstein Testifies Before Senate Judiciary Committee
Senator Mike Crapo, a Republican from Idaho, speaks during a Senate Judiciary Committee hearing with Rod Rosenstein, former deputy attorney general, in Washington, D.C., U.S., on Wednesday, June 3, 2020. The hearing comes amid dual national crises over policing in black communities and the coronavirus, issues that are top of mind for lawmakers and may undercut the impact of Rosenstein's testimony. Photographer: Greg Nash/The Hill/Bloomberg
Lawmakers enacted significant relief for regional banks
The Dodd-Frank Act subjected banking firms with more than $50 billion of assets to enhanced prudential standards by the Federal Reserve, including stress tests, as well as requirements to submit living wills.

The banking industry fought the threshold, arguing that it put regional banks under an overly burdensome regime that should be focused on the largest megabanks.

“One of the components of Dodd-Frank that we have been quite focused on for a long time are the artificial asset thresholds,” said Rob Nichols, president and CEO of the American Bankers Association. “Looking at regulating and overseeing a bank just based on asset size and putting those artificial asset thresholds is not the proper way to supervise a bank. You want to look at business model, risk profile, activities, all of that in totality, and that’s a far more systemic and thoughtful way to supervise an institution.”

Roughly eight years after Dodd-Frank became law, more than a dozen Senate Democrats joined Republicans in raising the threshold to $250 billion. The reg relief package championed by Senate Banking Committee Chairman Mike Crapo, R-Idaho, gave the Fed the discretion to determine how banks with more than $100 billion of assets should be supervised.

Even the 2010 law’s principal authors — former Senate Banking Committee Chairman Chris Dodd and former House Financial Services Committee Chairman Barney Frank — agreed that the $50 billion threshold in the legislation was too low, although they opposed raising it to $250 billion.

“Raising the level for what you would consider systemic, I was in favor of that,” Frank said in a recent interview. “I didn’t like $250 billion; I thought $150 billion would have been OK.”
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Representative Barney Frank, a Democrat from Massachusetts, questions Ben S. Bernanke, chairman of the U.S. Federal Reserve, duirng his semiannual monetary policy report to the House Financial Services Committee in Washington, D.C., U.S., on Wednesday, July 18, 2012. Treasuries remained higher as Bernanke reiterated during his second day of testimony to Congress that the U.S. fiscal situation is “unsustainable,” stoking demand for the securities. Photographer: Joshua Roberts/Bloomberg *** Local Caption *** Barney Frank
Despite regulatory relief, core sections of Dodd-Frank are still intact
Even with Crapo's regulatory relief package known as S 2155, the Supreme Court's decision on the CFPB, and reg relief initiatives by the Trump administration, Dodd-Frank has stayed largely intact.

Before S 2155 passed, Congress failed to advance previous legislative proposals by GOP lawmakers to repeal Dodd-Frank or unwind it more dramatically. Republicans such as former House Financial Services Committee Chairman Jeb Hensarling were forced to support more moderate steps to revise the legislation with relief provisions backed by both Democrats and Republicans.

Ten years later, the Fed's enhanced prudential standards for large banks and the Volcker Rule survive. Even the Supreme Court's CFPB decision stopped short of invalidating the consumer bureau or its past rules.

In the recent interview, Frank said the debate about Dodd-Frank has become "less partisan because there is a consensus that we’re not going to make any major changes."

“I think the banks have evolved in the sense that it turns out not to be as terrible as some of them thought," he said.
Federal Reserve Board Meeting On Banking Supervision
Janet Yellen, chairman of the U.S. Federal Reserve, from left, and Federal Reserve governors Daniel Tarullo, Sarah Bloom Raskin, Jeremy Stein, and Jerome Powell attend an open meeting of the Board of Governors of the Federal Reserve in Washington, D.C., U.S., on Tuesday, Feb. 18, 2014. The Federal Reserve is set to vote on new standards for foreign banks that will require the biggest to hold more capital in the U.S., joining other countries in erecting walls around domestic financial systems. Photographer: Andrew Harrer/Bloomberg *** Local Caption *** Janet Yellen; Daniel Tarullo; Sarah Bloom Raskin; Jeremy Stein; Jerome Powell
U.S. regulators toughened liquidity and capital rules, then eased them
In the decade since Dodd-Frank, bank capital and liquidity rules have continued to be a moving target.
But even though the law significantly affected large banks’ capital management process through enhanced prudential standards, other regulatory regimes have had an impact as well.

Responding to international Basel Committee accords, regulators in the Obama administration toughened short-term liquidity requirements in 2014 through the Liquidity Coverage Ratio, and imposed an Enhanced Supplementary Leverage Ratio for large banks the same year that went beyond the Basel standards. In 2016, the regulators set standards for banks’ “total loss absorbing capacity” to mitigate the risk of future taxpayer bailouts.

Yet policymakers have eased many of the standards during the Trump administration.

The banking agencies tweaked LCR requirements in October 2019 as part of a broader overhaul of its enhanced prudential standards, tied to the reg relief overhaul enacted by Congress. The effect of those changes was mostly concentrated on smaller banks, but so-called Category 3 banks — those with assets of $250 billion to $700 billion — also benefited from the changes. However, if banks in that category use more than $75 billion in short-term wholesale funding, they are subject to the full LCR.

So-called Category 4 banks — banks with assets of $100 billion to $250 billion — are now subject to no LCR if they use less than $50 billion in short-term wholesale funding.

Regulators have also taken recent steps to ease both the leverage ratio and TLAC requirements, including as a response to the economic fallout from the coronavirus pandemic.

Still, with the 2020 election approaching, and the potential for higher bank losses in the third and fourth quarters, capital and liquidity rules could come under greater scrutiny in the near future.
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Randal Quarles, vice chairman of supervision at the U.S. Federal Reserve, arrives during an International Monetary Fund Committee (IMFC) plenary session at the annual meetings of the International Monetary Fund (IMF) and World Bank Group in Washington, D.C., U.S., on Saturday, Oct. 18, 2019. The IMF made a fifth-straight cut to its 2019 global growth forecast, citing a broad deceleration across the world's largest economies as trade tensions undermine the expansion. Photographer: Al Drago/Bloomberg
Fed stress tests evolved
In the throes of the financial crisis in 2009, officials introduced the Supervisory Capital Assessment Program to assess bank capital to ensure that the nation’s largest banks would be able to sustain losses.

A year later, that regime became the law of the land when the Dodd-Frank Act was passed, requiring banks with assets of more than $10 billion to conduct annual company-run stress tests. The Fed in 2011 launched its Comprehensive Capital Analysis and Review evaluations, and began conducting annual Dodd-Frank Act stress tests—or DFAST—in 2013.

But in the last several years, the Fed has made several changes to its stress-testing regime. The Fed board in 2017 unanimously finalized new rules intended to make its stress testing models more transparent. In 2019, after Congress narrowed the enhanced supervisory regime, the Fed exempted banks with assets of $100 billion to $250 billion from that year’s stress testing cycle, instead requiring them to undergo the exercise in 2020.

Also in 2019, the Fed said it would limit its use of the “qualitative objection” in the CCAR stress tests. The CCAR exercise has historically included both quantitative and qualitative evaluations of a large bank's ability to withstand shocks to the financial system.

“If stress tests are to continue to be relevant and effective, I strongly believe that they must continue to change: they must respond to changes in the economy, the financial system and the risk-management capabilities of firms,” Fed Vice Chairman for Supervision Randal Quarles said in a speech last year.

In March, the Fed finalized the stress capital buffer to replace the capital conservation buffer as a new measure of capital adequacy. The SCB will take effect in the fourth quarter of this year, and the Fed has said it will publish bank capital plans before that requirement goes into place.
Key Speakers At The Bretton Woods Committee International Council Meeting
Paul Volcker, former chairman of the U.S. Federal Reserve, speaks during the 31st Annual Meeting of the Bretton Woods Committee at the World Bank Headquarters in Washington, D.C., U.S., on Wednesday, May 21, 2014. This year's meeting brings together leaders and experts from business and civil society to consider the value and changing nature of multilateralism in an age of austerity. Photographer: Pete Marovich/Bloomberg *** Local Caption *** Paul Volcker
Congress, regulatory agencies rolled back key parts of the Volcker Rule
One of the most pivotal provisions of Dodd-Frank, which the industry strongly opposed, prohibited banks from engaging in proprietary trading and limited their affiliation with private equity funds. The regulatory agencies finalized the restrictions in 2013.

But in the years since, the Volcker Rule — initially proposed by former Fed Chairman Paul Volcker — has been watered down on multiple occasions.

The 2018 reg relief bill known as S 2155 eliminated Volcker Rule compliance responsibilities for banks below $10 billion of assets, with trading assets and liabilities capped at 5% of total assets.

But the regulators used separate authority to make more substantive changes to make the rule easier for banks to stomach. After an initial “Volcker 2.0” proposal by the agencies to ease compliance with the trading ban was universally panned by bankers, the regulators went further with a final rule they released in August 2019.

The changes included scrapping a proposed accounting measure unpopular with the industry, while revising a different standard used to determine which trades are prohibited.

That wasn’t all. This past June, the agencies clarified the “covered funds” portion of the Volcker Rule, allowing banks to engage in certain investment instruments that had previously been banned, such as credit funds, venture capital funds, customer facilitation funds and family wealth management vehicles.

Regulators have said updating the Volcker Rule was worthwhile after it had been in effect for several years.

“We now have considerable supervisory experience putting that common sense prohibition into practice, and we have learned that a simpler, clearer approach to implementing the rule makes it easier for both banks and regulators to carry out the intent of the rule,” Fed Chair Jerome Powell said in January when the agencies proposed the covered-fund changes.
Boarded Up Retailers As D.C. Curfew Lifted
A pedestrian walks past a boarded up Citigroup Inc. Citibank branch in Washington, D.C., U.S., on Thursday, June 4, 2020. Mayor Muriel Bowser lifted the curfew in D.C. for Thursday, the Washington Post reported. Photographer: Andrew Harrer/Bloomberg
Banks successfully repealed unpopular swaps measure
Before the 2018 reg relief legislative package rolled back targeted provisions of the Dodd-Frank, the only other noteworthy change to the 2010 law came in late 2014, when Congress unwound the so-called swaps push-out rule.

Dodd-Frank’s Section 716 had required banks to “push out” many of their derivatives business to affiliates that do not benefit from federal deposit insurance or access to Federal Reserve lending facilities.

But Congress essentially repealed that provision with language added to an end-of-the-year spending bill — a controversial move that was seen as a huge legislative victory for the biggest banks such as Citigroup. The 2014 measure narrowed the types of swaps activities that were off limits to banks.
The 2016 Republican National Convention
A security fence stands outside the Quicken Loans Arena "The Q" ahead of the Republican National Convention (RNC) in Cleveland, Ohio, U.S., on Friday, July 15, 2016. A key Republican National Convention committee crushed a long-shot attempt by rogue delegates to block Donald Trump's nomination, as internal strife that's roiled the party for much of the past decade was on full display Thursday amid fights over governing rules for the next four years. Photographer: Daniel Acker/Bloomberg
Nonbank lending remained a competitive threat to banks
Regulators have long been wary of lending done outside the banking sector. Dodd-Frank installed some of the first major guardrails on nonbank financial companies. This included the Consumer Financial Protection Bureau, which was given the authority to supervise certain nonbank sectors, and the Financial Stability Oversight Council, established to designate “systemically important” nonbank behemoths to face banklike supervision.

But under the Trump administration, the FSOC has largely shifted focus away from its designation capability, and all of the firms that had been targeted by the council have since been de-designated.

In the years since the 2010 financial reforms, banks have managed to claw back a portion lending market share from nonbanks, rebounding from 32% at the end of 2009 to 37% in 2016 and holding stable as of 2019, according to the Federal Deposit Insurance Corp.

But nonbank lending has resumed significant growth in recent years in two critical areas: mortgages and leveraged lending. In 2017, nonbank lenders like Quicken Loans and Freedom Mortgage accounted for 53% of mortgages originated among companies that submit reports under the Home Mortgage Disclosure Act.

Regulators have continued to express concerns about the concentration loans provided by nonbanks to highly leveraged corporations. According to the most recent Shared National Credit Review, released in January, while nonbanks control approximately 22% of the leveraged lending market, they hold almost 65% of all loans rated “below a regulatory pass.”

While banks’ direct exposure to leveraged lending has dropped in recent years, falling from 30% of the market in 1994 to just 3% in 2018, regulators have suggested banks could still have significant indirect exposure to nonbank loans. Between 2010 and 2019, bank lending to nonbank financial institutions grew from $50 billion to $442 billion, according to the FDIC.
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