Five years ago Tuesday, President Obama signed into law the massive overhaul of U.S. financial regulations called Dodd-Frank. But there's still a battle over whether the law has helped stabilize the financial system or whether it has harmed the economy and should be rolled back.
Congress designed Dodd-Frank to fix excesses in financial markets and mortgage lending — excesses that triggered the financial crisis and forced massive bailouts of Wall Street firms.
After five years, regulators have completed just two-thirds of the rules that Dodd-Frank mandated. But that's not a reason for concern, says Annette Nazareth, a partner at the law firm Davis Polk, which tracks the law's implementation on its website.
"The most significant rules — those that required the most work and were probably the most impactful coming out of Dodd-Frank, I would say — have been adopted or there's been very serious progress," Nazareth said.
And one of the most difficult and contentious rules, the Volcker rule, takes full effect Tuesday. It bars banks that take government-insured deposits from making speculative investments like those that contributed to the financial crisis.
Dodd-Frank became law with almost no Republican support. Now that they control Congress, many Republicans want to repeal it or at least roll it back. Texas Rep. Jeb Hensarling is one of them. He calls Dodd-Frank Obamacare for the economy.
"And just like Obamacare, Dodd-Frank has left us with fewer choices, higher costs and less freedom," Hensarling said. "It's evident that Dodd-Frank has made us less prosperous and less free. If we want strong economic growth, more freedom, and an end to bailouts, it's time we commit to making sure this anniversary is Dodd-Frank's last anniversary."
Supporters argue that Dodd-Frank has improved regulation and made the U.S. financial system more stable, by among other things, requiring banks to hold more capital to absorb losses.
A recent report from the International Monetary Fund said U.S. banks appear healthier and stronger than they were five years ago.
Annette Nazareth agrees. "There's been very substantial progress in that area. I don't think there's any questions that the banks are far better capitalized than they were before," she said.
Also important, Nazareth says, is a requirement that banks produce something called a living will. That's a road map for how a bank can be wound down, without a government bailout, when it gets in trouble. Nazareth says that provision will help avoid future bailouts.
There is one area where Republicans and Democrats agree that Dodd-Frank has created problems. That's in the regulation of the nation's small community banks. At a recent hearing, Rep. Scott Tipton, R-Colo., described the problem for Janet Yellen, the chair of the Federal Reserve, which regulates community banks.
Tipton said he "sat down with community banks in my district. They feel that they are no longer working as a banker but they're working for the federal government. They're working just ... to be able to comply with regulations that are currently in place. And they don't feel that anyone is actually listening."
Yellen acknowledged there's a problem. "The regulatory burdens that they face have been really quite high and they're struggling with it," she said.
Yellen said it would be helpful if some Dodd-Frank regulations could be adapted to provide relief. Nazareth says that's a good idea. But she fears community banks will be held hostage to politics as Democrats and Republicans argue about whether a broader overhaul of Dodd-Frank is necessary.