WASHINGTON — Five years after its passage, the Dodd-Frank Act remains a political Rorschach test for the banking industry.

Depending on who you ask, it is either a landmark law that reined in the biggest banks by heightening capital requirements, requiring stress tests, mandating living wills and giving regulators sweeping new powers, or an economy-crippling overreach that burdened small institutions and won't prevent the next financial crisis.

In the immediate aftermath of such a broad law, such a stark division is relatively common. What's unusual is the way the divide has persisted five years later, and in many ways even hardened.

"Dodd-Frank's legacy would probably be in the eye of the beholder," said Sen. Richard Shelby, R-Ala., chairman of the Banking Committee, in an interview. "To the hard left in our political spectrum, they think Dodd-Frank is a wonderful piece of legislation. But to a lot of us, especially those that have had to pay the price of Dodd-Frank — which is ultimately the consumer — it was no panacea. It's a nightmare."

With each passing year, industry observers have predicted that by the next anniversary, lawmakers will be open to making significant changes to Dodd-Frank. They note that nearly half of the lawmakers who voted for Dodd-Frank have now departed, theoretically making it easier for their successors to support alterations.

And yet defense of Dodd-Frank has become a key litmus test among Democrats, just as revamping it has become one for Republicans. Although the majority of the GOP has moved away from calling for an outright appeal, Democrats are bolstering their guard, fearing death by a thousand cuts for the law if they permit individual changes.

"We have to constantly be on our watch, and constantly pushing back, constantly exposing their efforts to do all of this. That's going to be part of what we have to do for a long time to come," Rep. Maxine Waters, D-Calif., ranking member on the Financial Services Committee, told American Banker.

The fight over financial reform has helped expose growing ideological fissures within the Democratic party, much like the tensions between Tea Party Republicans and the establishment GOP. The White House faced a fierce backlash last winter when it aided the rollback of a key derivatives provision in order to pass a spending bill, ushering in the first significant change to the law.

In response, President Obama vowed in his State of the Union address earlier this year to veto any measures aimed at "unraveling the new rules on Wall Street," solidifying the resistance to legislative changes anytime soon. That leaves moderates in both parties who would like to see less controversial tweaks to the law, such as provisions to help community banks, in a bind.

An Unending Journey

Perhaps one of the reasons the law has stayed so upfront in policymakers' minds is that even five years later, it's still not fully implemented.

For students of Washington, the past several years have been an object lesson in the workings of the regulatory process — both its upsides and its pitfalls.

It's undisputed that the law granted historic new power and discretion to regulators to implement nearly 400 required rules. But regulators have finalized just 60% of the law's mandated provisions, with another 18% proposed, according to the most recent data from law firm Davis Polk.

Even those figures don't do justice to the battle scars that almost every rule has sustained. Regulators, industry officials and advocates have clashed over treatment of the derivatives market, new mortgage rules, insurance standards, executive compensation, nonbank supervision and countless other issues.

Put simply, implementation has been a long, hard slog.

"Anybody who had a minimal amount of familiarity with the regulatory process would have said, this is going to be years unwinding and very controversial, with a tremendous amount of fighting and lobbying on every little word in some of the provisions," said Mark Calabria, director of financial regulation studies at the Cato Institute.

Regulators are now armed with landmark opportunities to rein in large financial institutions of all kinds that could pose a threat to the system, including nonbanks, but it's also raised questions about the nature of that power.

"The law was written very quickly and it gave a lot of discretion, not just to regulatory agencies directly, but indirectly, in determining what the statute actually said," said James Ballentine, executive vice president of congressional relations and political affairs at the American Bankers Association, who added that Congress should be "mindful of" that power in reviewing the law now.

Dodd-Frank rules often span hundreds of pages and can require an army of lawyers to understand. For many, the consequences have proven troubling — even for those who champion the law.

Sen. Elizabeth Warren, D-Mass., said in an interview that watching Dodd-Frank be put into place over the past five years has strengthened her desire for "simple, structural rules."

"Every exception, every carve-out, every grandfather clause represents an opportunity for a big, well-connected firm to protect its own interest at the expense of everyone else," she said. "The wind still blows in one direction only. Regulators are constantly hearing from industry and that results in rules that are delayed and too often watered down. That didn't change with Dodd-Frank — if anything, it increased."

Sheila Bair, former chair of the Federal Deposit Insurance Corp., agreed. She said regulators should make a stronger case for their decisions, instead of letting industry and others write the narrative for them in their absence.

"Regulators could help today if they had simpler, clearer rules where the benefit and valued-added are more transparent to Congress and the public," said Bair. "If people don't understand what's going on with Dodd-Frank, what the rules are accomplishing, there's going to be dissatisfaction and you're going to see increased momentum to roll it back."

A Presidential Problem

Looking forward, there's little to suggest a radical shift in the political narrative anytime soon. Whether or not Dodd-Frank is invoked by name, the slate of presidential candidates in 2016 is certain to pick up the debate over "too big to fail," Wall Street reform, regulatory overreach and the health of the financial system.

Sen. Bernie Sanders, a Democratic presidential contender, has already challenged frontrunner Hillary Clinton on her commitment to going beyond Dodd-Frank. For her part, Clinton has largely ducked questions about financial reform beyond tweeting that "attacking financial reform is risky and wrong."

Most of the Republican candidates have yet to get into specifics, but former Florida Gov. Jeb Bush suggested in June that Dodd-Frank rules have made the system riskier.

Such rhetoric is only likely to heat up during the next year, reaching fever pitch in 2016 when the financial reform law turns six years old.

Opponents in Congress are also expected to continue their push to change or roll back key portions of the law.

"The act faces tremendous dangers on the legislative side — there's no doubt the majority party in Congress, if not wishing to dismantle it completely, is determined to make dramatic and radical changes," said Art Wilmarth, a law professor at George Washington University.

Shelby, a long-time critic of Dodd-Frank, released a broad legislative package earlier this year that would loosen rules for smaller banks as well as make reforms to the Federal Reserve and the Financial Stability Oversight Council. He added that he'd still like to see even bigger changes to the law, including bringing the Consumer Financial Protection Bureau under congressional appropriations and replacing the director with a board, though he opted to sidestep such a divisive effort in his current bill.

"That's probably another fight another time. But would I like to do it? Absolutely," Shelby said.

Democrats, including Sen. Sherrod Brown, D-Ohio, the panel's ranking member, balked at Shelby's bill during a committee vote this spring and say they remain wary of sweeping changes.

"I would fight tooth and nail against a major weakening of the Dodd-Frank reforms that have given us a more stable financial system," Brown said in an interview. "I just wonder if some of my colleagues that want to wholesale weaken Dodd-Frank, if they slept through the financial crisis and didn't know we had one."

Still, some changes remain possible. Brown and other Democrats have signaled openness to providing regulatory relief for small and mid-sized financial institutions, though whether a deal can be struck ahead of the elections remains to be seen. GOP efforts to jam changes through Congress this fall as part of the appropriations process or another must-pass bill could prompt another showdown with the White House, one that could prove even more heated than the last.

Bigger changes, meanwhile, are years away.

"We're entering into the era of defending against what critics will call unintended consequences," said Edward Mills, a policy analyst at FBR Capital Markets. "Going into the future, there will be changes to Dodd-Frank, though the degree of those changes will depend on who wins the presidency and Congress next term."

At the same time, progressives will continue to call for reforms that go even further than Dodd-Frank — particularly when it comes to restraining the biggest banks.

The political dynamic means that far from ending five years ago, the battle over financial reform will continue for the foreseeable future.

"It's the same conversation we were having five years ago and the same conversation we were having 90 years ago. And that's the rules versus markets argument. The biggest banks don't like rules. They want to be able to make money however they can and to count on the American taxpayer if things go wrong," said Warren. "It was the same fight that led to the crash that led to the adoption of Dodd-Frank and that now is framed over the attacks on Dodd-Frank."

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