As other regulators move past implementing Dodd-Frank, the SEC falls further behind
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Six years ago, on July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act. The law, which was enacted in the aftermath of the Great Recession, was the most sweeping overhaul of financial regulation since the Great Depression.

In the intervening six years, financial regulators have worked hard to bring this law to life. The new Consumer Financial Protection Bureau has already promulgated a host of new protections for consumers and has returned over $11 billion to consumers. Rules to stop banks from making so-called “proprietary” bets are in place. The CFTC established a new regime to bring transparency, stability, and enforcement to a nearly $600 trillion over-the-counter derivatives market that proved explosively dangerous during the financial crisis. 


And that just scratches the surface.

Dodd-Frank was a monumental bill. Yet despite all the progress Dodd-Frank spurred over the last six years, the SEC remains far behind in fulfilling its obligations under Dodd-Frank compared to its regulatory peers.

To be fair, the SEC had numerically more rules to write than other regulators owing to the nature of its broad jurisdiction. But that does not fully explain the SEC’s slow pace of work on Dodd-Frank.

After a quick start under then-Chair Mary Shapiro, the SEC has made frustratingly limited progress over the past four years. While current Chair Mary Jo White has finalized some important rules, such as the Volcker Rule and a handful of others, we have yet to see completed some of the most basic Dodd-Frank provisions.

Take, for example, Dodd-Frank’s prohibition against financial institutions creating asset-backed securities and then betting against them—which the SEC, as the primary regulator of the asset-backed securities marketplace, was charged with implementing. If you’ve seen “The Big Short,” you’ll be familiar with what Dodd-Frank sought to address. 

In the run up to the crisis, some of the world’s largest banks figured out that the American mortgage market was a toxic disaster. Instead of responding appropriately, these firms actually created new financial instruments that were loaded with toxic mortgages and other assets linked to them. The banks then marketed and sold these dubious investments as the safest of the safe—AAA rated. These financial products allowed the banks to make money from the collapse of their creations.

Put simply, a handful of banks created billion-dollar complex financial products that were designed to fail, sold them to unwitting customers around the world, and then profited from the failures.

This wasn’t “market making”—it was fraud. We—and the rest of the country—are disappointed that the SEC chose to not bring more meaningful enforcement actions against the perpetrators of this fraud. But thanks to the dogged legislative efforts of Sens. Carl LevinCarl Milton LevinThe Hill's Morning Report - Biden officials brace for worst despite vaccine data Michigan GOP unveils dozens of election overhaul bills after 2020 loss How President Biden can hit a home run MORE and Jeff MerkleyJeff MerkleyGreen tech isn't all it's cracked up to be 2024 GOP White House hopefuls lead opposition to Biden Cabinet 33 Democrats urge Biden to shut down Dakota Access Pipeline MORE, it should be easy to prevent in the future. The Dodd-Frank Act bans those who package securitizations from taking financial positions against their customers. Five years ago, the SEC proposed an implementing rule. The rule still hasn’t been completed. 

Chair White has defended the years-long delay by saying “it’s complicated,” but several senators, Chair White’s fellow commissioner, and countless others disagree. This isn’t a problem of complexity, it’s a problem of regulatory will.

Sadly, this conflicts of interest provision isn’t the only one that is not done. The SEC hasn’t finished a long list of rules necessary to regulate swaps under its oversight or most of the rules relating to executive compensation. Beyond Dodd-Frank, it hasn’t taken meaningful steps to improve cracks in its own oversight of “shadow banking” that were exposed during the financial crisis. These cracks led to some of the most troubling failures and bailouts. And that doesn’t even touch a host of urgent needs in ordinary investor protection. These failures leave American families and businesses exposed, every day, to another financial crisis.

While other regulators have moved on to new and emerging risks, Chair White’s SEC has left too much work undone. It has instead prioritized efforts urged by corporations and banks to ease their perceived burdens. This is exactly the wrong approach.

July 21 should be a day for us to applaud our financial regulators for helping to make our financial system stronger, more resilient, and more fair. While the majority of our regulators have taken huge steps forward on that task, the SEC has not. The public deserves to have confidence that its securities market regulator observes its statutory mandates, protects investors, and serves the public interest. It’s time for the SEC to finish implementing the Dodd-Frank Act.

Andy Green is Managing Director of Economic Policy for the Center for American Progress. Tyler Gellasch is a Principal at Myrtle Makena. Both previously served as senior aides in the U.S. Senate during the drafting and implementation of the Dodd-Frank Act. Both later worked as senior aides to SEC Democratic Commissioner Kara Stein.