In the aftermath of the global financial crisis, the United States passed the Dodd-Frank bill, one of the Obama administration's key legacies. The legislation stepped-up the regulation of U.S. banks, and was aimed at preventing a similar melt-down. Most agree it has changed the dynamic on Wall Street -- but there is much debate on whether it has been a success. Karina Huber has more.
When U.S. President Barack Obama signed the Dodd-Frank bill into law, he promised the new regulation would change the way Wall Street does business.
"In the end our financial system only works - our market is only free - when there are clear rules and basic safeguards that prevent abuse, check excess, that insure it is more profitable to play by the rules than to game the system." Obama said.
The ultimate goal was to prevent a repeat of the global financial crisis and a bailout of the banks. But six years later, many U.S. banks are still too big to fail. Experts say their collapse would pose a systemic risk to the global economy. But according to Columbia Law Professor John Coffee, Dodd-Frank HAS made it less likely the banks WILL fail.
"The Federal Reserve has pushed strong capital requirements, they've required banks to get out of riskier fields and banks no longer own hedge funds, banks no longer invest in stocks and they're no longer trading some of the more exotic securities."John Coffee said.
Prohibiting banks from taking risky bets and requiring them to have a bigger cushion if they run into trouble has made U.S. banks less profitable. As a result, the industry has been shrinking. It has also become harder for people to get loans.
Some worry the changes make U.S. banks less competitive globally.
"So basically American banks are not going to be in a position in ten years from now to support the activities of multinational American companies while banks in other countries are going to have that capability. The American banks have got to get bigger." Dick Bove, analyst from Pafferty Captial Markets.
Whether you agree or disagree with that statement, Coffee believes Dodd-Frank's fate lies in the hands of the next U.S. President.
"Dodd-Frank's survival depends on the outcome of the current presidential election. If Donald Trump is elected President, Dodd-Frank will be repealed probably within a year." John Coffee said.
Industry lobbyists and many Republican congressmen pushed hard against the Dodd-Frank financial reform law throughout its implementation. If Trump, the Republican nominee, were to take control of the White House, the bill would lose a powerful ally and analysts say Wall Street could go back to doing business like it did before the financial crisis.
