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Republican Victories Will Not Imperil Financial Reform

The Dodd-Frank Act, the sweeping reform of the regulatory system for financial institutions, will not be imperiled by the major Republican victories last night. This may seem counterintuitive, since the act passed with virtually no Republican support and a number of Republicans have stated that they would like to repeal it or major parts of it. However, Republicans are not in the position to repeal it and there are real reasons to doubt that they would choose to do so anyway.

First, the Democrats remain willing and able to block any repeal, both through their control of the Senate and, ultimately, the President’s veto pen. Financial reform was a major agenda item for the Democrats and they will not easily allow it to be overturned. Second, Republicans must be very careful not to feed public perceptions that they are too friendly with the despised bankers. Concern on that score kept Republicans from holding firm on their Senate filibuster of the original bill and that concern will remain, since hatred of bankers seems unlikely to fade away anytime soon. Related to that, they must be aware that any momentum to reverse parts of Dodd-Frank could be undercut by another major lawsuit, or even criminal charges, against major Wall Street players. The SEC suit against Goldman Sachs was a strong force that drove Dodd-Frank forward in its final phases and past crises show us that there are likely to be a number of additional legal actions over time as the crisis is dissected further.

That all said, Republicans will clearly try some more limited actions to alter the course of financial reform. They may look to repeal a few pieces of Dodd-Frank that they dislike the most and are comfortable from a political viewpoint in attacking. They will also likely try to influence regulators who still need to make many critical implementation decisions. At the extreme, they may threaten to withhold funding to implement certain aspects of the bill. But, the impact of the Republican victory will be far less than it would have been if Dodd-Frank had not yet been signed into law. Timing is everything in politics.