After A Decade, What Is Settled About Dodd-Frank?

• Published date: 27 October 2020
• Law Firm: Gibson, Dunn & Crutcher
• Author: Mr Arthur S. Long

In a statement that has been more honored in the breach than the observance, Justice Louis Brandeis once noted that "it is usually more important that a rule of law be settled than that it be settled right."¹ July 21, 2020 will be the 10th anniversary of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank). Enacted in President Obama's first term, its provisions called for significant rulemaking by the federal banking agencies. The first rulemakings were not immune from criticism, and after the 2016 election, Congress trimmed certain DoddFrank provisions in the Economic Growth, Regulatory Relief and Consumer Protection Act of 2018 (EGRRCPA). In addition, in a series of rulemakings that drew dissents, the federal banking agencies have, in the last few years, cut back on the reach of many of their initial Dodd-Frank regulations. With a presidential election looming, it is appropriate to ask what parts of the Dodd-Frank scheme for the nation's banks are finally settled after a full decade, and what may be subject to yet further change.

We should start with the principal changes to Dodd-Frank affecting wholesale banking since 2016. Five of the most significant ones are: (i) the tailoring of the Section 165 enhanced prudential standards for large bank holding companies;² (ii) the revisions to the proprietary trading and private funds provisions of the Volcker Rule;³ (iii) the simplification of minimum capital rules, with the so-called "Stress Capital Buffer" (SCB) becoming the most important constraint for many banking organizations;⁴ (iv) the shift by the Financial Stability Oversight Council (FSOC) away from designating systemically significant nonbank companies (Nonbank SIFIs);⁵ and (v) reduction in required margin for bank-affiliate derivative contracts.⁶

These modifications to the pre-2017 DoddFrank regulatory regime have not had unanimous support at the regulators. In particular, Federal Reserve Board (Federal Reserve) Governor Lael Brainard and Federal Deposit Insurance Corporation (FDIC) Director Martin Gruenberg have published dissents to many of them, as well as dissents on other changes. It is quite possible that both regulators would play important roles in a Democratic Administration in 2021. On one view, everything could be up for grabs in a new Administration.⁷ There are, however, reasons to believe that this will not be the case because of certain legal constraints as well as the practical experience of the...