Next month marks the two-year anniversary of the Dodd-Frank law, ushered in with great fanfare and the tantalizing promise of preventing another financial crisis.
You'll forgive me for not popping champagne.
This week the public is getting a first-hand look at how little the law, which overhauled the nation's financial regulations, has actually accomplished. Today the Senate is holding a hearing to examine the stunning $2 billion-plus trading losses at JPMorgan.
Chastened banking regulators told lawmakers they're probing how the losses occurred, why they failed to notice or address the problem and launching internal reviews of their supervision and response. A top Federal Reserve official told Congress banks need to hold higher levels of capital to withstand losses and avoid taxpayer bailouts.
Stop me if you've seen this movie before. It's been nearly five years since the financial sector brought the U.S. economy to its knees, and many of the central Dodd-Frank provisions intended to prevent a repeat have yet to be implemented. As I've written before, the Financial Stability Oversight Council has yet to designate a single non-bank financial firm as "systemic," despite the fact that the U.S. Treasury is winding down its taxpayer-funded bailouts and firms such as AIG are again plunging into real-estate loans.
Bank executives, maybe the least self-aware people on the planet, continue to fight many of the law's provisions -- including the Volcker Rule and stricter capital levels -- saying they are costly, duplicative and onerous.
Despite the industry's black eye, its pushback is being taken seriously. As Bloomberg News reports, Treasury Secretary Timothy Geithner has "challenged" bankers to prepare a study detailing which rules are problematic. If he agrees there are problems, he has offered to better coordinate rulemaking among regulatory agencies.
It's no wonder that Sheila Bair, who was among the most outspoken advocates for financial reform as former chairman of the Federal Deposit Insurance Corp., is launching her own "systemic risk council" to push for regulatory reform. She is frustrated by the "slow progress of regulators and standard-setters," according to the Pew Charitable Trusts, where she now works.
Many on Wall Street -- and even in Washington -- argue that JPMorgan's troubles show the system is better-protected. After all, the bank didn't fail and has more than enough capital to withstand the losses, even if they top $4 billion as expected.
But as today's hearing will highlight, if regulators were unable -- or unwilling -- to prevent problems at JPMorgan, a heavily regulated and arguably well-run bank, how can they protect the broader financial system?
It's a question worth asking, given the damning report issued by the trustee overseeing the bankruptcy of MF Global Holdings Ltd. That report details how the firm moved around some of its risky European bets to dodge capital requirements and try to put one over on the Securities and Exchange Commission.
The Dodd-Frank law isn't perfect. It doesn't address some of the riskiness in the financial system, including reliance on short-term funding (which can disappear overnight and plunge a company into financial distress, as happened with Bear Stearns and Lehman Bros.). But it includes many helpful provisions that, if implemented, could at least mitigate the chance of another devastating financial crisis.
With the two-year anniversary upon us, the public should ask itself why Washington won't do what it said it would at a time when the consequences of risky behavior couldn't be clearer. Let's hope Washington comes to its senses before another crisis devastates an already hobbled U.S. economy.