Jake Thomases: Dodd–Frank Under Romney: Weakened But Not Dead

US presidential nominee Mitt Romney has vowed to “repeal and replace” Dodd–Frank, calling it a drag on economic recovery. And that was before his campaign co-chair Tim Pawlenty took a lobbying job with the Financial Services Roundtable, which represents JPMorgan and Wells Fargo, among others.

The idea of a new lord of 1600 Pennsylvania Ave. becomes more real as Nov. 6 nears. So why doesn’t Romney’s hard-line Dodd–Frank stance get more attention? All that preparation by banks, Form PF filings by hedge funds, the rise of swap execution facilities, the compliance and legal training—all of it could be irrelevant on Jan. 20. The difference between four more years and zero more years of Dodd-Frank is huge. 

Waffles
The lack of attention paid to his position may be because few people actually believe the law will ever be repealed. Love or hate the former Bain Capital CEO, the only person more known for their waffles is Aunt Jemima. It’s generally accepted that once he hits office, either his priorities will change or his halfhearted efforts will be blocked by Congress.

“With Dodd–Frank, it’s not going to be repeal [sic],” Scott Garrett, a Republican congressman, told Bloomberg News. “There might be repeals of sections, but there will be a piece-by-piece analysis. We’ll throw out some and reform others.” His is the more logical, and likely, approach. Romney wouldn’t want the headache of bashing a wholesale cancellation through Congress, not to mention the effect it would have on his image, promoted by opponents, as a disconnected millionaire. Likely voters support Dodd–Frank 73 percent to 20 percent, according to a July poll by Americans for Financial Reform. Instead, Republicans would look to whittle down the number of provisions and water down those that remain. It’s a more time-consuming approach, but one that would meet less opposition.

Beneath the mess of rules that Wall Street says don’t reduce systemic risk and add layers of costly bureaucracy, there are a few core parts of the law the banks like. As for other parts, too much time and resources have been invested to put the genie back in the bottle. 

“The vast bulk of it is good,” Goldman Sachs CEO Lloyd Blankfein said in July, adding “some parts go too far.” Kenneth Bentsen, executive vice president of public policy and advocacy at Sifma, told a House subcommittee that Sifma supports better oversight of over-the-counter (OTC) derivatives and single counterparty credit limits, among other aspects.

One way for Romney to quietly weaken the law is to not enforce the parts he doesn’t like. The president appoints the chairs and commissioners of the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC). As of this summer, only 30 percent of over 400 Dodd–Frank regulations had been enacted, and only 20 percent of deadlines had been hit. It wouldn’t be difficult for an unenthusiastic chairperson to keep those numbers low.

The provision most likely to look different under Romney, says Harvard professor Hal Scott, is the Volcker Rule banning prop trading. “It doesn’t make a lot of sense, and there are a lot of Democratic senators who voted for it holding their nose.” he says. “I testified in Congress two days after the Volcker testimony proposing this rule and [Dodd–Frank co-author) Sen. Chris Dodd couldn’t believe it was coming forward. Other Democrats on the Banking Committee didn’t understand it either, but supported it because the president did. If Romney wins, a lot of those votes for the Volcker Rule will disappear. I don’t think the rule will disappear, but it will get redefined. It’ll be more like Glass–Steagall—you can prop trade with an affiliate, but not within the bank.”

It’s worth noting that vice presidential nominee Paul Ryan supported the Volcker rule as a congressman. And, of course, Dodd–Frank may stay intact if Obama is reelected.