FOR IMMEDIATE RELEASE
Wednesday, July 8, 2020
Contact: Pamela Russell at 202-618-6433 or prussell@bettermarkets.com
Washington, D.C. – Better Markets today released a White Paper that details how the Dodd-Frank Act and other banking reforms over the last 10 years have prevented a crash of the banking system similar to the one experienced in 2008. Dennis M. Kelleher, President and Chief Executive Officer of Better Markets, and Tim Clark, Distinguished Senior Banking Adviser at Better Markets and a former Deputy Director of Supervision and Regulation at the Federal Reserve Board, authored the White Paper. They issued the following statement on the key findings:
“Attempts to address the COVID-19 pandemic have led to nearly Great Depression-levels of unemployment, a severe economic contraction and unprecedented uncertainty about the economic outlook. The economic downturn has in many ways been worse than what happened during the Great Recession of 2007-2010. Fortunately, however, this has not (yet) led to a crash of the banking system as happened in 2008. The question is why?
“A critical, but incomplete reason is that the Federal Reserve has taken rapid and massive actions to keep financial markets functioning, which have benefited banks while also supporting economic activity. A fuller answer is that the Dodd-Frank Act and other post-crisis banking reforms forced the banks—particularly the handful of too-big-to-fail banks on Wall Street that were bailed out in 2008—to take actions that have made them more resilient to severe shocks than they had been in the past.
“Those critical post-2008 crisis banking reforms—particularly stronger capital and liquidity rules, stress tests, and derivatives reforms—have worked largely as intended, strengthening the banking system as a whole and leaving it better prepared for disasters such as what we are now facing. Indeed, due to those reforms, large banks are currently supporting the economy in important respects, rather than acting as a drain on it by requiring bailouts and withholding credit as happened in 2008. This relative success is in spite of the actions of the biggest banks over the last 10 years when they, their lobbyists and political allies opposed almost every financial reform that is now the foundation for their current resilience.
“While the too-big-to-fail problem is far from solved, and further work on banking and non-banking reforms is still required, particularly in light of the deregulation over the last three years, we have a stronger U.S. banking system because of the Dodd-Frank Act and the implementation of banking and financial sector reforms. We now have a system in which the largest banks have been required to internalize more of the costs of making it safer. This has, at least so far, prevented a banking system crash, reduced the likelihood of taxpayer-funded bailouts, and lowered the cost should one be needed.
“We should acknowledge the relative success of post-crisis reforms and can take some comfort that the banking system is stronger than in the past, but we must also acknowledge that this cannot be the ultimate objective. The goal has never been just to have the banking system stronger than it used to be and certainly not one just stronger than 2008 when weak banks that were dangerously run caused the worst financial crisis since 1929. The goal is to have a system that is in fact strong enough to support the American people in good times and bad, without requiring extensive government actions or taxpayer-funded support. That will require strengthening the rules and oversight of the non-bank financial sector, improving on the successes of post-crisis banking reforms and addressing the damage being done by ongoing deregulation.”
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Better Markets is a non-profit, non-partisan, and independent organization founded in the wake of the 2008 financial crisis to promote the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans again. Better Markets works with allies – including many in finance – to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit www.bettermarkets.com.
