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16 | TH E M R EP O RT COVER STORY The Dodd-Frank Life Cycle W ith our slippery national memory, we Americans can sometimes forget what led to the 16-title Dodd-Frank Act in the first place: the toxic home loans, credit downgrades, and everything else we lump in with the worst financial crisis since the Great Depression. Back in 2009, during the heady days of the Great Recession, polls saw the exact reverse when it came to public confidence in Wall Street and elected officials. That year, a CNN/Opinion Research Corp. survey found three-fourths of respondents trusted newly-elected President Barack Obama with the economy, compared with just 28 percent of those who felt confident in the judgment of bankers and financial- services executives. And why not? The economy was in a tailspin, hemorrhag - ing hundreds of thousands of jobs every month. Others knew even harsher realities, with more than 4 million Americans out of their homes by 2012, according to CoreLogic. A memorably "con- servative" estimate by the Federal Reserve Bank of Dallas later detailed about $16 trillion—trillion with a T—in losses to the U.S. economy as a result. With political pressure mount - ing, banks and financial institutions saw their clout vanish on Capitol Hill. They weren't pariahs, but their lobbyists might've also stitched the scarlet letter onto their pinstriped la - pels, particularly as former President George W. Bush's Administration's Troubled Asset Relief Program bankrolled their bailouts. "They were brought to their knees in the crash," for - mer Congressman Jim Moran (D-Virginia), now a senior legisla- tive advisor with Chicago-based McDermott, Will, and Emory, recounted to us by phone. "If you have to be bailed out by the tax- payer, it's a humbling experience." Out of this sprang the carpe diem moment and political capital for the bill lawmakers would name after then-Sen. Chris Dodd (D-Connecticut) and then-Rep. Barney Frank (D-Massachusetts), chairs for the financial services com- mittees in their respective chambers. With the financial-reform law came what Obama said would be a "[crackdown] on abusive prac- tices in the mortgage industry." Regulators required the industry to merge its longstanding TILA and RESPA disclosure forms, do away with hidden fees and penal- ties, and more. The law notably demanded that large banks keep a capital cushion handy in case they got into trouble. There was a host of new agen- cies, too. Regulators shuttered old ones like the Office of Thrift Supervision and shifted their responsibilities to new ones like the CFPB and Financial Stability Oversight Council (FSOC). Room for Agreement M ark Calabria, director of financial regulatory studies at the libertarian-leaning Cato Institute, called these transfers of responsibility part of "largely cosmetic" fixes that did nothing to punish those regulators whom Democrats criticized for being asleep at the wheel. The law had other ramifica - tions, many of which took time to manifest across the housing and mortgage markets. There's been an exodus of large financial services institutions from various parts of the mortgage orig - ination business. In closing down their respective origination units, Bank of America, Wells Fargo, MetLife, Discover, and other big names typically cited the uncertain financial regulatory environment. Small, independent community banks—typically those with under $10 billion in assets—also criticize the law for a heap of new regula - tions with expensive reporting requirements. According to the American Action Forum, a conservative advocacy group, these smaller banks have assumed the burden of some $30 billion in combined regulatory costs, along with more than 70 mil - lion combined hours of paperwork. "Dodd-Frank's regulatory burden must be borne by some- one: financial institutions and their employees, shareholders, or consumers in the form of higher prices or less access to credit," the Forum's researchers concluded in a statement. "It appears the law has affected all three entities." Even one Harvard University study reports finding acceleration in the declines of asset shares for small banks, with their shares shrinking by more than 12 percent since the second quarter of 2010— when Dodd-Frank became law. Researchers Marshall Lux and Robert Greene found community bankers shared fears that "Dodd- Frank has exacerbated the preexist- ing trend of banking consolidation by piling up regulatory costs on institutions that neither pose sys- temic risks nor have the diversified businesses to support such costs." Moran, who voted for Dodd- Frank, concurred about the need to address the compliance burdens for smaller banks. "Smaller, independent com - munity banks don't have an entire 16 | TH E M R EP O RT THE GROUP THAT CAN SAY YOU'RE 'TOO BIG TO FAIL' The election could decide the fate of the Financial Stability Oversight Council As lawmakers discussed Dodd-Frank's pros- pects in 2009, chief among their considerations for what would go into the bill was an agency that could prevent another Great Recession from ever happening again. That agency, the Financial Stability Oversight Council (FSOC), would be responsible for diag - nosing whether a financial services firm was "too big to fail," or systemically important. Such was its importance that lawmakers used the phrase in Title I of Dodd-Frank. Just how would it follow through with its mission? For starters, FSOC—which seats the Treasury secretary, Federal Reserve chairman, Consumer Financial Protection Bureau director, and the heads of other agencies—can, on its own authority, designate whether a financial services firm is too big to fail. MetLife, Inc., was the latest company to feel the sting of that designation. According to the Wall Street Journal, MetLife sued FSOC in the U.S. District Court for the District of Columbia to contest that decision. The Journal reports the company echoing FSOC's critics, with claims that its decision was "arbitrary and capricious," and that the agency itself is unconstitutional. For its part, according to the same source, FSOC's attorneys stood by the agency's decision, likening MetLife's financial position in the system to the space that AIG occupied. We'll see in November whether FSOC lives past New Year's Day 2017.