At a recent talk, former Sen. Christopher J. Dodd summed up the impact as such: “Today, the economy is doing well. Leverage is better. Transparency in the derivatives market is much better.”
Because of the Financial Stability Oversight Council, Mr. Dodd said, “we now have the ability to kind of spot the kind of activity (that puts the system at risk). Clearly we are in far better shape than we were, around the world.”
Is the council working the way former Rep. Barney Frank of Massachusetts envisioned? “I think they should look at the (big financial institutions),” Mr. Frank said. “There might be the need to break some of them up.”
Kurt Schacht, New York-based managing director of the CFA Institute's standards and financial market integrity division, noted: “For an industry that was not really the major culprit in the financial crisis, Dodd-Frank came down like a ton of bricks on investment management.
“There has been an inordinate amount of the regulatory fallout, but (the industry) has weathered it and has emerged stronger.
“As far as a safer system, I am convinced the too-big-to-fail banks pose as great a risk today as they ever have. Becoming bigger and even more complex is hardly a solution.”
In a release, SEC Chairwoman Mary Jo White said that within a year of the legislation taking effect, the Securities and Exchange Commission began bringing greater transparency and oversight to hedge fund and other private fund advisers.
“The commission also established stronger standards for the clearinghouses that stand at the center of the global financial system and built an enhanced program for their supervision,” Ms. White said.
“Dodd-Frank has done what it initially intended, which was to address issues that arose in the financial crisis, but it is not perfect,” said Stacey Slaughter, partner in the New York office of law firm Robins Kaplan LLP.
Another plus, she said: “One of the biggest items for institutional investors is corporate governance ... alignment of executive pay with performance and clawbacks.”
Large money managers see Dodd-Frank differently, because the rules and exemptions are complicated, she said.
“My colleague says it's like the "freshman 15.' You gain "the Dodd-Frank 50' in terms of learning all the rules and exemptions, many of which have not been implemented yet,” Ms. Slaughter said. “It's taken so much time and it's so cumbersome, many asset managers have found Dodd-Frank debilitating.”
Bruce I. Jacobs, principal, Jacobs Levy Equity Management Inc., Florham Park, N.J., noted, “Financial regulators, like generals, are always fighting the last war. After the market crash of 1987, circuit breakers were introduced in the hope of restraining volatility in the U.S stock market. These did not prevent market breaks in 1989, 1991 or 1997.
After the collapse of Long-Term Capital Management LP in 1998, “international regulators ... publicized numerous guidelines designed to improve bank lending standards and rein in hedge fund leverage,” Mr. Jacobs said. “These did not help us avoid the credit crisis of 2007-'08. The next financial crisis is just as likely to arise outside the banking sector as inside it.”
Anne Simpson, director of global governance for the California Public Employees' Retirement System, Sacramento, said the $302.2 billion fund is a strong supporter of Dodd-Frank.
“Effective regulation is essential to address systemic risk,'' Ms. Simpson said. “CalPERS considers that smart regulation needs to be comprehensive, to ensure all market actors are covered, to be proportionate so that it allows market participants to play their proper role, and it needs to be coordinated, within and across borders.”