James Angel is associate professor at Georgetown University’s McDonough School of Business, specializing in the regulation and structure of financial markets.
KIPLINGER: At least 28 financial reform deadlines have been missed. Are investors at risk?
ANGEL: The “Dodd-Frankenstein” bill is a very complex piece of legislation that dumps hundreds of new rule-making responsibilities onto an underfunded and dysfunctional regulatory structure. If you want the rules to be done right, something’s got to give, and in this case, it’s the deadlines. We’re going to be living with these regulations for decades. The cost of putting them into effect will be huge. So if it takes another month or six months to get it right, it’s worth it.
What isn’t getting done because resources have been diverted to Dodd-Frank? I would like to see fiduciary standards, which will clarify how brokers must put customers’ interests first, sooner rather than later. But the real problem is that our regulatory structure is so fragmented that stuff falls through the cracks. The right hand doesn’t know what the left hand is doing. Dodd-Frank did nothing to fix this regulatory dysfunction—it just came up with more rules. It gave us 2,200 pages of Band-Aids.
What important Dodd-Frank provisions have yet to be tackled? The big delay has been in derivatives-related rules, which would address these arcane financial products that played a big role in the financial crisis. Under Dodd-Frank we want to move much of this activity onto regulated clearinghouses and exchanges, giving regulators more authority. This is a business where you have to get the details right. Something that will really affect consumers is the definition of a qualified residential mortgage. These are the highest-quality loans, which bankers won’t be required to keep on their books. If borrowers qualify for a QRM, they’ll get good terms. If not, they’ll get hammered with higher rates. It’s important to get it right so that we can get on with helping people buy houses.
Is reform here to stay, or will it be significantly weakened or repealed? It’s not a question of being weakened or strengthened; it’s a question of making it work. We’ll be arguing about the details for the rest of our lives, as the market changes. Financial reform is here to stay.