Sheila Bair on the state of Dodd-Frank and financial reform

Publication: American Public Media

Author: Jeff Horwich


07/18/2012 - Jeff Horwich: Happy (almost) Anniversary, everybody. Two years ago this Saturday, President Obama signed the Dodd-Frank financial reform law. Dodd-Frank followed the hurried bailout of American financial firms. Many say the bailout pulled the economy back from the brink. But the ad-hoc nature of the bailout made clear we needed better ways of responding to -- and ideally preventing -- financial crises.

Sheila Bair was chair of the FDIC during the bailout and the crafting of Dodd-Frank. She later founded the Systemic Risk Council to pressure the government and the financial industry to live up to the goals of financial reform. As the anniversary approaches, we invited her to Marketplace for a check-in. Welcome.

Sheila Bair: I’m happy to be here.

Jeff Horwich: As I recall, you were quite adamant while Dodd-Frank was being crafted that it should pave the way for essentially a bailout free future. Do you think we got there?

Bair: Well, I think we’re getting there. You know, we don’t really end “too big to fail” until we convince the market that they are going to take losses if these big banks get into trouble. There has been some progress on that score, the ratings agencies have started downgrading the banks based on the reduced likelihood that they will be bailed out in the future. So, I think that there is more work to be done but yes, we are making progress.

Horwich: As you continue to work and advocate to weed out various problems in the system, do you think we are stuck with anything truly problematic either in the law itself or that has come about during the implementation of Dodd-Frank?

Bair: Well, yes. I mean, I think Dodd-Frank is something I support but it is a very long and complex law and unfortunately, the regulations we are getting now are also quite lengthy and complex. The CFTC moved forward last week with its definition of swaps -- which I’m glad they’re moving forward but the definition was 600 pages long and it’s basically because of all these things in there for lobbyists saying who is not subject to these new rules.

Horwich: So systemic risk, this term that you are so closely attached to -- if I might paraphrase -- is “a risk to a financial institution that could have major spillover effects beyond that institution.”

Bair: It’s a risk to the public-at-large. A practice or an institution that if it gets into trouble, if things go wrong could hurt innocent bystanders.

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Read the full interview, Sheila Bair on the state of Dodd-Frank and financial reform, on American Public Media's website.

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