Only true reform will avert another financial crisis

Five years after the Financial Crisis Inquiry Commission issued its investigative report into the financial meltdown, we have a long way to go to prevent a repeat of the crisis.

Congress and President Obama created the commission to look into the causes of the meltdown. We reviewed millions of pages of documents, interviewed more than 700 witnesses and held 19 days of public hearings across the country, including in communities hard hit by the crisis.

This two-year process confirmed that the crash was an avoidable tragedy, caused by widespread failures of regulation, reckless risk-taking on Wall Street and systematic breaches in ethics and accountability. Our inquiry exposed the urgent need to increase banking oversight and consumer protection.

Despite a furious attempt by some to rewrite history, the commission’s findings have stood the test of time. In the years since, Americans continue to wonder whether anything has changed — and if their economic security is still at risk.

The answer isn’t simple.

Obama and Congress took a major step forward by approving the Dodd-Frank financial reform law in 2010. That law mandated that banking regulators impose risk controls at the nation’s 34 largest banks. It also established the Consumer Financial Protection Bureau (CFPB) to protect Americans from unscrupulous business practices. The bureau has forced the return of more than $11 billion to an estimated 25 million Americans that have been wronged by financial companies.

Although we have made some progress, it hasn’t been nearly enough to match the magnitude of the crisis and what the country endured. Disturbingly, some members of Congress already are working to turn back the clock and return to the broken pre-crisis status quo that nearly brought down our economy.

Legislation backed by some in Congress would force regulators to roll back the improved risk controls at more than two-dozen of our largest banks. The Consumer Financial Protection Bureau also is under constant threat, as we saw during the recent fight in Congress over the omnibus spending bill, when some members tried unsuccessfully to change the agency’s structure and prevent it from doing its job.

The Dodd-Frank standard requiring that lenders find that borrowers have the "ability to repay" has helped to ensure that mortgage loans are made more responsibly. But proposed legislation would return us to the dangerous pre-crisis way of doing business by weakening these standards and making it easier for lenders to prey on borrowers.

The crisis showed the importance of having regulators with backbone who are willing to stand up to Wall Street. But strong regulators alone aren’t enough. They need the resources to do their job, and the American people’s support when they act in the public’s interest.

That’s why it’s been so disappointing to see Congress underfund the Securities and Exchange Commission and the Commodities Futures Trading Commission, which serve as Wall Street watchdogs.

The Commodities Future Trading Commission has been given significant new responsibilities for policing a $400-trillion derivatives market. Yet, there was no increase in its $250 million budget this year, despite President Obama’s request of $322 million.

The American people will never be truly protected from Wall Street wrongdoing until these agencies receive the resources they desperately need.

Since our report was presented, the Wall Street executives responsible for helping cause the Great Recession haven’t paid any real legal, economic or political price for their actions. Fines and penalties still are treated as a cost of doing business. Violations often are settled for pennies on the dollar at the shareholders’ expense, without any admission of wrongdoing. What’s needed instead are real penalties for wrongdoing, including criminal penalties when warranted.

We have made progress since the commission’s report. But building on these reforms will take political will, as revisionists continue to try to rewrite history, roll back progress, and prevent reforms from seeing the light of day.

Bob Graham, a former governor and U.S. senator from Florida, was a member of the Financial Crisis Inquiry Commission. Phil Angelides, former California treasurer, served as chairman of the FCIC.

This story was originally published February 6, 2016 at 10:33 AM with the headline "Only true reform will avert another financial crisis."