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Financial community’s guerilla war delays implementation of many of the financial-reform measure’s provisions.

July 21 will mark the first birthday of the Dodd-Frank Wall Street Reform and Consumer Protection Act—and one wonders if it will live to the ripe old age of three. The law is intended to prevent the good citizens of Wall Street and their counterparts in banking from ever again blowing up the global financial system. Some pharaohs of finance desire that the 2,300-page law be put to the sword. They complain that it requires mounds of capital, is overly punitive, will slash their profits and, consequently, dry up consumer credit, sinking the economy. This is risible, given the economic conditions they helped create a year before the law’s passage.

THEIR LAMENTATIONS REMIND ME of Don Dixon, whose stewardship of Vernon Savings & Loan in Texas resulted in losses of about $ 1.3 billion back in 1987. Dixon, who was sentenced to five years in prison for a fraud that let him squander money on yachts, planes and beach houses, moaned to me shortly before his sentencing that he would be unable to employ his superior business acumen for the betterment of society if he were locked in a cell.

Rep. Barney Frank, one of the 2010 law’s namesakes, dismisses the whining, and says he is very satisfied with Dodd-Frank’s overall effect on the financial-services industry thus far: “In general, it is holding up very well,” the Massachusetts Democrat tells Barron’s, noting that “there have been no calls from the industry for statutory changes.”

More accurately, there have been no overt calls from any major financial trade association for statutory changes. Instead, the financial community is waging a guerrilla campaign against the law. They have a sympathetic audience among Republicans, who view Dodd-Frank as a government takeover of the financial sector. Speaker John Boehner of Ohio was for repealing the bill even before it was signed into law, declaring it a “job killer.” Rep. Michele Bachmann of Minnesota, a Tea Party favorite, has included repeal of Dodd-Frank as a plank in her campaign for the GOP nomination.

The Democrats thought that passage of the bill, along with the Obama health-care act, would win the hearts of voters in the midterm elections. After all, the bankers helped ruin the electorate’s retirement funds, ran down the prices of their homes and caused massive job losses. Instead, to their consternation, the GOP won 63 House seats and took back control of that chamber, which it had lost in 2007.

But Frank’s being “very satisfied” isn’t the same as his beingperfectly satisfied. The congressman is irritated that President Barack Obama hasn’t yet nominated anyone to head the Consumer Financial Protection Bureau established by the law. Frank also is nettled that the financial industry is “winking” at Republicans who are delaying implementation of Dodd-Frank by the Securities and Exchange Commission and the Commodities Futures Trading Commission by denying the two agencies adequate funding for operations. The regulators recently had to extend rule-making on elements of the law for six months because they were unable to meet the statutory deadline.

“If Wall Street wanted the regulators adequately funded, then the money would be there,” Frank contends.

Responds T. Timothy Ryan Jr., president and CEO of the Securities Industry and Financial Markets Association, one of the most influential trade groups: “The regulators have called us and asked if we would help them with this, and I have said, ‘It’s not really our job. That’s the government’s job to get the agency funded.’ If I were running one of those agencies, which I have done, I really would not want to be beholden to the industry for funding.”

WHILE THE TRADE GROUP HASN’T CALLED FOR repeal of Dodd-Frank, it dislikes specific provisions of the law, notably the so-called Volcker rule. That provision is designed to stop proprietary trading by banks for their own accounts and limit bank investments in hedge funds. Ryan says it is overly complex and may interfere with banks’ market-making activities. The group also dislikes a provision that pushes derivatives and swaps trades from large, well-capitalized banks into clearinghouses, which he says won’t be as financially strong. Ryan is also concerned about the measure’s economic impact on the financial health of the overall industry. Government should be studying this, he argues.

Rather than agitating for repeal of the law, the association has tried to offer constructive criticism, he adds, sending more than 100 comment letters to regulators. Still, Ryan says that it is premature to assess the impact of Dodd-Frank. Implementation, he estimates, is just one-third complete. “In 18 months, we will be able to grade Dodd-Frank.” That will be in February 2013, a few weeks after the next president is sworn in.

This is a sage strategy. After all, Obama could be re-elected, Democrats might go to the polls in droves, take back the House and name Frank chairman of the House Financial Services Committee. So, investors interested in financial companies’ shares should also wait and see.

E-mail: jim.mctague@barrons.com

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