If any of these bigger-than-ever banks got into trouble, would the government again have to come to their rescue? Certainly the bond markets are convinced it would happen. A recent study by Bloomberg News reveals that the big five banks borrow money on the open market at a rate that is 0.8 percent lower than the rate paid by smaller banks. Small change? Think again. According to Bloomberg, in the case of JP Morgan Chase that favorable “too big to fail” rate amounts to a $14 billion a year government subsidy—about 77 percent of its net income over the past year.

Jamie Dimon may scream it isn’t so, but the bottom line is that his bank’s business model is in large measure dependent on being too big to fail.

The “living wills” Dodd-Frank required the major banks to write, spelling out how they would be wound down in a crisis, were released on July 3. Their hypothetical scenarios would be of little use in the real world. Each of the wills depends on that bank’s ability to sell assets in an orderly manner to another large financial institution. But given how interconnected they are, if one megabank is in trouble, the probability is they will all be in the same boat. “Orderly” is not what happens in a meltdown.  
So are our largest banks still too big to fail? Of course they are. That’s why Senator Sherrod BrownSherrod BrownDems push for more action on power grid cybersecurity Senate Banking panel huddles with regulators on bank relief Overnight Regulation: Labor groups fear rollback of Obama worker protection rule | Trump regs czar advances in Senate | New FCC enforcement chief MORE (D-Ohio) recently reintroduced the amendment he and I wrote before Dodd-Frank was passed. Brown-Kaufman placed sensible size limits on banks and restricted any one bank’s assets to 10 percent of U.S. GDP. It failed by a 66-33 vote in 2010, but recent events have only made our case stronger.

Let’s turn to a second question. Has Dodd-Frank put in place safeguards that prevent our megabanks from engaging in the risky activities that led to the meltdown?

Clearly, the recent disclosures about the multi-billion dollar trading losses incurred by JP Morgan Chase don’t build confidence that the big banks have changed their ways. Jamie Dimon has insisted that the losses were the result of a failed hedging strategy. Every Wall Street insider I have talked to dismisses that argument. The “London Whale” was trying to make a killing using proprietary trading. And just as in the debacle of 2008, derivatives—Warren Buffet’s “financial weapons of mass destruction”—were at the heart of the fiasco.

Two major sections of Dodd-Frank were designed to end this kind of proprietary trading by federally insured banks. The first was a requirement that the SEC and the CFTC regulate derivatives trading and make it more transparent. The agencies missed the July, 2011 deadline, but two weeks ago, they approved rules defining what a “swap” is. The definition included a number of exemption which could become ‘loopholes”.

The Volcker amendment was the second section of Dodd-Frank designed to limit proprietary trading. Remember that it was introduced only after it became clear there were not enough votes in Congress to reinstate the Glass-Steagall Act, which had kept low-risk commercial banking and high-risk investment banking separate for over 60 years until repealed in 1999. After winning the lobbying war against Glass-Steagall reenactment, the megabanks have spent hundreds of millions more to bring implementation of a meaningful Volcker Rule to what looks like a complete standstill. If the Volcker Rule is watered down to allow the London Whale trades because the bank described them as hedges, not proprietary trading, would it be of any real use at all?
So the too big to fail banks are bigger than ever. They are also more powerful than ever, and are using that power to make sure they can continue to gamble with taxpayer-insured money for their own profit. But is there hope that the regulatory agencies may still come up with solutions? That’s our third major question.  
Keep in mind that, to get the law passed, so many compromises were made that Dodd-Frank effectively told the regulatory agencies“we would like to do such and such but we’ll leave the details to you.”
As always, the devil is in the details. And to mix up the metaphor, the agencies are having a devil of a time meeting specified deadlines. In fact, according to the scorecard prepared on July 2 by the Davis Polk & Wardwell law firm, they are hopelessly behind.
Why? Start with the simple reality that regulatory agencies are designed to enforce clearly stated laws. They aren’t good at writing both the laws and the regulations.
Second, the agencies that are supposed to write these regulations lost much of their clout in the years leading up to the financial meltdown. The Madoff Ponzi scheme. WaMu’s sub prime loans. LIBOR. I could fill a dozen columns of this length with other examples of scandals that happened in large part becausepeople who simply didn’t believe in much regulation were running the regulatory agencies.
Third, in addition to the vast amounts of lobbying money Wall Street banks have spent fighting against new regulation, the sheer volume of their calls on regulatory agencies has been close to overwhelming. A study of who has been lobbying the four major regulators shows that over 93 percent of the contacts with those agencies as they grapple with the law have been financial institutions, their law firms, or financial trade associations.

Of course, until the dust has finally settled at all the regulatory agencies, we won’t know for sure what kind of teeth new regulations will have. When you look at why deadlines are being missed, though, there is no reason to be optimistic.

It is clear to me that Dodd-Frank, however good its intentions, has not and will not protect us against another meltdown. Solutions such as reinstating Glass Steagall or enacting Brown Kaufman are clearly available and desperately needed. As we read more in the next few weeks about the unfolding LIBOR scandal or some inevitable new outrage about a rigged and dangerous financial system, perhaps enough people will begin to demand the kind of decisive legislative action I fought for back in 2010. Until then, I am really afraid we as a society are behaving much like the guy in the old joke who falls from the 90th floor. As he passes the 50th, someone looks out the window and asks how he is doing.

The punch line: “Just fine so far.”