A Year After Dodd-Frank

„A year after Congress passed a landmark law intended to tame the excesses that produced the financial crisis, some experts contend that a crucial vulnerability remains: The largest financial institutions are still so enormous that their failure could again bring the financial system to the brink of disaster. The passage of the Dodd-Frank law has sowed a perception of safety that has spawned a dangerous complacency, they add. The next crisis will happen sooner rather than later, said Anat Admati, a professor of finance and economics at the Stanford Graduate School of Business. »We're not safer and there's still a lot of systemic risks in large banks and in the financial sector overall.«

A central aim of the law, known as the Wall Street Reform and Consumer Protection Act, was to undercut the assumption that some institutions are so big that their potential failure could again force the government to rescue them, rather than allow their troubles to trigger another crisis. The very perception that the government stands ready to rescue the largest banks tends to be construed by the markets as a government insurance policy -- one that encourages the executives at such institutions to take bigger risks.

But on the first anniversary of the act’s passage, the nation's largest banks boast larger holdings than ever. Their political clout is on the rise, say experts, and the government regulators who are supposed to be looking out for the next wave of reckless speculation are starved of cash. Meanwhile, stalwart banking industry allies in Congress are seeking to crimp the authority of the regulators on multiple fronts.

In short, assert some experts, the problem posed by institutions seen as Too Big To Fail is itself bigger than ever.”