So Little Faith in Dodd-Frank
It’s not really a big surprise to hear that Dodd-Frank is a big point of contention in the financial services industry. Since the bill’s passing in 2010, and even quite some time before that, corporations on all sides of the market spectrum have been grappling with this 2,000-plus page document. Interestingly, in a recent poll of TradeTech USA panel attendees, 71% believed that implementing Dodd-Frank is not enough to prevent another “too big to fail” situation and will not make the financial market any safer. Only 3% of respondents thought the bill would be successful in its original purpose.
One of the panelists had a poignant explanation for the poll result: although the market learned a lot from the 2008 implosion, it has a short-term memory. While industry participants are now extra vigilant for the problems that eventually gave birth to Dodd-Frank, there appears to be a fundamental need to make money in the marketplace. People will look to new financial instruments that can generate alpha, products that could potentially cause another major financial catastrophe.
Regulation is a powerful tool, as another panelist put it, and needs to be used carefully. There could be many unintended consequences from Dodd-Frank that may impact the market in five, 10 or 50 years. One thing that seemed to be clear from the sentiment of the panel attendees is that there seems to be little industry confidence that proposed legislation will protect the market from another crisis.