A Year After Dodd-Frank, Too Big To Fail Remains Bigger Problem Than Ever

A Year After Dodd-Frank, Too Big To Fail Remains Bigger Problem Than Ever

Terrific article by Shahien Nasiripour, senior business reporter from the Huffington Post. He writes frequently about Wall Street/corporate fraud issues and attempts at government regulation. In this piece, Shahien takes a critical look at the Dodd-Frank Wall Street Reform Act a year after its passage. He writes that, in spite of all of the hoopla surrounding the enactment of the legislation, little has really changed. The nation's largest banks and brokerage firms are getting bigger; the structural deficiencies and incredible financial incentives that motivated unethical decisions still remain; and the ability of regulators to "mind the store" continues to erode to the point of absurdity. He concludes that, in spite of the new regulations, the economy simply cannot afford to let these banks fail, and they know it. The knowledge that any behavior will ultimately be tolerated creates a kind of institutional arrogance that perverts even the most conservative of free market economy theory, which hold that in a true capitalist system, those institutions which violate the rules of order will pay the ultimate price and will not survive.

One of the problems with the way we have approached banking and finance regulation is that it is almost predominantly reactive in its focus. Legislation creates a set of rules; a whistle blower reveals a violation of the rules; and the regulators must take some kind of punitive action. Unfortunately, those actions often fail to have any deterrent effect, because economic interests are seen to outweigh ethical and legal considerations. In my view, regulators need to focus on proactive, preventive measures by (1) requiring companies to establish genuine business ethics and compliance programs, and have them regularly assessed by an independent third party, (2) leveraging the use of independent corporate compliance monitors, at company expense, to regularly evaluate corporate internal controls and compliance with the most critical regulations that can negatively impact consumers and the economy, and (3) integrating integrity agreements into every administrative, deferred prosecution, and non-prosecution agreement that call for even more intrusive monitoring of company practices on a regular basis, before violations occur.