Despite critics' claims, Dodd-Frank hasn't slowed lending

There may be good reasons to overhaul parts of the sweeping Dodd-Frank financial reforms, enacted in 2010 in response to the financial crisis two years earlier.

But concern about a slowdown in bank lending isn't one of them.

President Donald Trump and congressional Republicans have vowed to roll back a wide range of federal regulations — with Dodd-Frank one their top priority targets.

On Friday, Trump ordered the Treasury Department and other financial regulators to review the banking and consumer finance rules created under Dodd-Frank, a law he has called "a disaster."

"We expect to be cutting a lot out of Dodd-Frank," he told a group of bankers and other corporate executives, "because, frankly, I have so many people, friends of mine that have nice businesses that can't borrow money. They just can't get any money because the banks just won't let them borrow because of the rules and regulations in Dodd-Frank."

Trump's order did not specify which regulations he would like to see lifted, a move that will require congressional legislation. But defenders of the law have noted that the Trump administration could choose to relax enforcement of portions of the law it deems too restrictive.

Opponents of the law argue, among other criticisms, that it has clamped down too hard on banks and restricted the availability of credit for businesses and consumers.

"The Dodd-Frank Act is a disastrous policy that's hindering our markets, reducing the availability of credit, and crippling our economy's ability to grow and create jobs," Sean Spicer, Trump's press secretary, said Friday.

But statistics on bank lending don't back up that claim. Since the law took effect in July 2010, bank lending to businesses and consumers has continued to hit new highs.

Former Massachusetts congressman Barney Frank, the Democrat who co-sponsored the law, said that only one provision in the more than 850-page law directly restricted lending.

"It's one that says 'Please don't lend money to poor people, you can't lend money to poor people who can't pay you back for their mortgages,'" he told CNBC on Monday. "Literally that restriction on irresponsible subprime mortgages is the only lending restriction."

Other parts of the law, he said, were intended to promote lending. Those include the so-called Volcker rule, named for former Fed Chairman Paul Volcker, that encouraged banks to devote more capital to lending and less to trading investments.

"Goldman Sachs — which is helping to populate this administration — because they are making less money from trading than they had been before has created a whole new entity to lending," Frank said. Efforts to roll back portions Dodd-Frank began almost as soon as it was signed into law.

From the beginning, the debate over how to create new regulations to prevent another financial crisis was one of the most contentious of the past decade, pitting reform-minded Democrats against free market Republicans aided by an army of lobbyists on all sides.

The resulting Dodd-Frank Wall Street Reform and Consumer Protection Act — named for Frank and former Democratic Sen. Christopher Dodd — was a sprawling kitchen sink of proposed regulations, signed by President Barack Obama in July 2010, which contained 17 separate sections, governing everything from car loans to CEO pay to Congolese conflict minerals.

The creation of the legislation governing the well-funded financial services industry fueled a massive lobbying effort that continues as the rule-making process drags on.

While sweeping in scope, the law Congress enacted left the details of specific rule-making to a patchwork of regulatory agencies, including a newly created Financial Stability Oversight Council designed to coordinate the rule-making process. A new Consumer Financial Protection Bureau, an independent consumer lending watchdog, consolidated regulatory powers once housed in seven different federal agencies with a mandate to protect individuals from abusive lending practices by the financial services industry.

With hundreds of new rules being written by multiple agencies, the law became a ripe target for a group of well-paid lobbyists. That's one reason that, despite specific deadlines attached to many of the new rules, Dodd-Frank remains a work in progress.

As of last July, six years after the law was enacted, some 30 percent of the proposed rules had not been finalized. A fifth of them hadn't even been proposed, according to Davis Polk & Wardwell, a law firm that has tracked Dodd-Frank rule-making progress since the law was enacted.

With many of the bill's original congressional supporters no longer in office and the urgency of the 2008 financial crisis fading from public memory, the law is now under attack from multiple fronts as various corners of the financial services industry seek to have rules delayed, watered down or revoked.

But it remains to be seen how that legislative battle will play out.

Trump's executive order Friday set only broad principles for financial regulation, including prevention of taxpayer-funded bailouts and empowering Americans "to make independent financial decisions and informed choices."

With nearly 400 separate sets of rules and regulations, rolling back Dodd-Frank now will likely involve multiple skirmishes on Capitol Hill between defenders and supporters of the law.