Panel Evaluates Life After Dodd-Frank

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Dodd-Frank Still a Work in Progress, but Has Already Failed to Eliminate Concept of “Too Big to Fail,” Panel Says

The Dodd-Frank Act overhauling the nation’s financial regulations was signed into law nearly a year ago, but with many of its rules on how it will be implemented yet to be written, it is still a work in progress.

Even without those rules, Dodd-Frank has come up short in at least one important respect, said Harvey Miller ’59, perhaps the nation’s best-known bankruptcy lawyer and restructuring expert. “I think the overarching concept of Dodd-Frank is to eliminate the concept of ‘too big to fail,” Miller said. “And in that context, the statute is a total failure.”

Miller spoke on a panel, moderated by Professor John C. Coffee, analyzing Dodd-Frank as part of the Reunion 2011 celebration at Columbia Law School.

Miller’s view of Dodd-Frank was informed by overseeing the largest corporate liquidation in history after the demise of Lehman Brothers, which sparked the market meltdown in 2008.

“The concept the statute adopts is that by oversight and regulation you’ll be able to stop this problem of systemic risk by nipping it in the bud,” Miller said. “That requires the will to regulate. And, yet, when you look at what happened leading up to 2008, you find that there was a total lack of will to regulate.”

But there is the larger question related to the ability of regulators to use those powers effectively, said panelist Annette Nazareth ’81, a former commissioner at the Securities and Exchange Commission.

“We’re talking very sensitive, prudential regulation that’s going to have to take into account that firms vary a lot, have different management structures,” Nazareth said.

Lately, many companies are trying to escape the oversight of the Financial Stability Oversight Council created by Dodd-Frank. The council will designate specific financial institutions that pose a systemic risk to the financial system, likely those with at least $50 billion in assets. Those entities will face higher capital requirements and must also create a “living will” that details how they would restructure if forced into bankruptcy.

Such regulation is unprecedented, and firms have been going to Washington pleading that they do not merit such treatment. “This is one of the few times I’ve ever seen where people do not want to be viewed as important or exceptional,” said Nazareth, now a partner at Davis Polk in Washington, D.C.

That firms are resisting such oversight and that there is so much jockeying over the Dodd-Frank rules is troubling to Charles X. Li ’91, chief executive officer of Hong Kong Exchanges and Clearing Limited.

“We are essentially coming to the conclusion that institutions are still too big to fail and Dodd-Frank is too big to work,” said Li, who previously was chairman of JPMorgan Chase China and president of Merrill Lynch China.

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