Key Drafter of Dodd-Frank: Act Will Level Playing Field
July 25, 2011
July 26, 2011
One year on from the signing of the Dodd-Frank Wall Street Reform and Consumer Protection Act and commentators across the globe are assessing the impact of the law. The evaluations range from successful, to concerned, to apocalyptic.
So what do the drafters of the legislation think?
Michael Barr, who was a key architect of the Dodd-Frank Act, believes it was an important step forward.
“I think the Dodd-Frank Act will help level the playing field for all institutions to be able to compete, and it will make the financial system more resilient,” the former Treasury official told Anthem. “When failures occur, we are less likely to see the kind of widespread harm to the financial sector and our economy.”
Barr, a keynote speaker at the Association’s Convention, is now a professor at the Michigan Law School, as well as a senior fellow at the Center for American Progress and the Brookings Institution.
That leveling may have been visible as Goldman Sachs, long labeled as Too Big Too Fail, reported disappointing second-quarter earnings because of a lower trading revenue. However, other big banks continue to enjoy cheaper borrowing costs and strong profits, meaning this is yet a confirmed trend.
There are parts of the legislation that concern credit unions, particularly the newly formed Consumer Financial Protection Bureau (CFPB). However, Barr is not worried: “The CFPB will help to level the playing field for credit unions, and create a competitive environment in which they can thrive.”
“Over time, the Dodd-Frank Act and the new Basel capital rules will help to level the playing field on funding; (and) provide incentives for the largest firms to shrink, simplify their organizational structures, and reduce risk.”
He concedes that the new law means institutions will have to alter their way they do business. “There has been a re-pricing of financial services,” he said.
However, this was not just the result of legislation. “Many changes were brought about by the financial crisis, including a re-pricing of credit risk in credit cards and mortgages.”
Furthermore, he adds “many credit unions already have business models that are well-aligned with the goals of the consumer bureau: fairness, transparency, and consumer protection.” Therefore, the bureau should have only minimal impact on them.
Knowledgeable of all the key players in Washington, at his Convention session, Barr will be able to give insights into where the next legislative tussles in Washington, DC, and who will be leading them. For instance, in a recent interview with the Financial Times, he describes the nominee to head the CFPB, Richard Cordray, as “smart, tough, and experienced,” and as “one of the early leaders on identifying the problems that led to the mortgage crisis.”
Next on Congress’s agenda: government sponsored enterprise (GSE) reform. Barr believes that this will be “essential, but will take a while.”
“In the meanwhile, there will be increased focus on the regulatory tools that can be used to begin to reshape the mortgage markets, with a focus on making them more resilient, while providing for appropriate and sustainable mortgage credit,” he said.
Barr received his JD from Yale Law School, his MPhil in international relations from Magdalen College, Oxford University, as a Rhodes Scholar, and his BA, summa cum laude, with honors in history, from Yale University. He was also a law clerk to U.S. Supreme Court Justice David H. Souter.