70% of Americans say it's “very important”
to regulate banks to keep consumers safe.
But deregulation is a huge part of President Trump’s agenda.
He’s already made steps to eliminate Dodd-Frank,
the Obama era law that tried to reign in
the banks after the 2008 financial crisis.
You have regulations that are horrendous.
So we're going to do a very major haircut
on Dodd-Frank.
So what exactly is Dodd-Frank and what does it do?
The goal of Dodd Frank is to curb the practices
that caused the financial crisis.
Before the recession, banks realized that
mortgages could be a huge money-maker.
So they made it really easy to get one,
even for people who were at high risk of being
unable to repay.
Many defaulted and the banks foreclosed on their homes.
Dodd-Frank set out to make mortgages safer.
It implemented new rules that forced banks
to only make loans to people who could prove
they were able to repay them.
And it some ways it’s worked.
Foreclosures are way down.
At the height of the financial crisis,
more than 1 million people lost their homes
to foreclosure in a single year.
Last year, fewer than 400,000 homes entered foreclosure.
But the financial crisis wasn’t only caused
by people unable to payback their loans.
Banks were also using customer’s money
to bet on high-risk investments.
So Dodd-Frank also tries to stop banks
from doing things that could make them lots of money
but weren’t in the best interest of their clients.
One of the most controversial parts of the law
is what’s known as the Volcker rule,
which basically tries to stop the bank
from using the money it received from your deposits
to take risky bets that could increase its own bottom line.
Here’s a simple way of thinking about it:
when you put your money in the bank,
a bank can pretty much do whatever it wants with it.
But the catch is that your money is protected
by a government agency that insures American’s deposits.
Bank insurance works like many other forms of insurance.
They'll cover you for a genuine accident,
like your house burning down because you left a candle lit,
but not if you were knowingly reckless
and threw lit matches on the floor, then walked away.
In finance terms, investing in a hedge-fund
can be a little like playing with fire.
And the Volcker rule makes it so banks
can’t make high-risk bets with people’s money.
On the surface, these changes seem sensible
and a good fix.
But a lot of critics say that this new regulation
makes banking inefficient and bad for consumers.
Trump campaigned on this.
We have to get rid of Dodd-Frank.
The banks aren’t loaning money to people that need it.
He’s not totally wrong.
Since Dodd-Frank requires banks to be
much pickier in who they give loans to,
things like mortgages and small business loans
are much easier to get if you’re already wealthy
and have a solid credit score.
So, while we have fewer foreclosures,
homeownership is also its lowest level in decades.
Another issue is that small banks complain
that they can’t survive with all of the regulations.
Complying with the hundreds of new laws,
means a lot more work and sometimes hiring more people.
This is one of Bernie Sanders’ big problems with Dodd-Frank:
It helped the big banks stay in business,
who then eat up the small ones.
Banks have been consolidating for years,
but Dodd-Frank hasn’t really stopped them from
becoming “too-big-to-fail.”
The number of commercial banks has declined by 30% since 2008.
Republicans say that banks are simply over-regulated.
Dodd-Frank is impeding economic growth.
It's keeping people in poverty.
It's keeping the middle-income people trapped.
But the data shows something different.
Yes, there are issues with loans and consolidation,
but big banks have also been really profitable
over the past few years.
And the stock market has grown more than 200 times
since it’s low point in 2009,
one of the largest sustained periods of growth in modern history.
Democrats believe that if they let the banks self-regulate,
we’ll end up with another financial crisis,
or at the very least, a banking system
that can hurt the American people.
These aren’t just political debates.
The rules we make for banks
have real consequences for America's wallets.
This is Unpresidented.
A weekly series where Atlantic writers
explore what's happening in this new era
of American politics.
Let us know what topics you want us to tackle next.
I'm Gillian White, and thanks for watching.