Unhappy birthday: The Dodd-Frank Law reaches the 1-year mark
July 21, 2011
The Dodd-Frank financial reform act reached its one-year anniversary, but the date was marked less by a celebration than by a struggle for survival.
According to the White House, lobbyists have spent $50 million trying to undo aspects of the law. If you have bank deposits, you have a stake in this fight, so it's worth knowing what Dodd-Frank entails.
Flawed, but not fatally
Dodd-Frank is far from a perfect piece of legislation. Perhaps its primary flaw is its complexity. Regulators are still trying to process its requirements, meaning that actual enforcement work isn't yet being done.
More specifically, one of the most egregious aspects of the bill is the Durbin Amendment, which requires the Federal Reserve to cap what banks charge for interchange fees. These are the charges banks make to retailers in exchange for processing debit card transactions. The argument is that capping these fees would benefit consumers, but since the charges are unseen to consumers and come out of the pockets of retailers, chances are it is retailers who will benefit from having these charges capped. Meanwhile, consumers will suffer as banks try to make up for the lost revenue with higher fees, most likely on checking accounts.
What's in it for savings accounts?
Despite those flaws, much of Dodd-Frank is clearly in the corner of depositors. For example, it made permanent the increase in Federal Deposit Insurance Corporation (FDIC) insurance coverage on savings accounts and other deposits, from $100,000 to $250,000. Also, provisions of the so-called Volcker Rule have the potential to limit how banks speculate with deposit money.
The Volcker Rule gets to the heart of why Dodd-Frank was necessary in the first place. If properly enacted, it could restore some of the protections of the Glass-Steagall Act. Glass-Steagall was Depression-era legislation which subsequently helped keep the banking system safe for over 60 years; it took less than ten years after its repeal, in 1999, for the banking system to reach the brink of a meltdown.
Greater deposit protection, and safeguards against banks speculating with your money, are examples of how Dodd-Frank stands behind depositors - and why depositors should stand behind Dodd-Frank.