Since the financial crisis began two years ago, the American public has expressed considerable support for increased regulation of the financial sector. The Dodd-Frank Wall Street Reform and Consumer Protection Act, which President Obama signed into law in July, was the result. The act represented the most sweeping overhaul of the nations financial system since the Great Depression. But did it satisfy the public demand for reform?
The latest findings of the Chicago Booth/Kellogg School Financial Trust Index offer an answer to that questionand its not what the president and his fellow Democrats want to hear. According to the index, which we direct, only 12 percent of respondents declare themselves satisfied or very satisfied with the new law, versus 54 percent who declare themselves unsatisfied or very unsatisfied with it. Not surprisingly, the vast majority of Republicans (80 percent) are dissatisfied. More surprisingly, a full 54 percent of independents are dissatisfied, and even among Democrats, only 35 percent report being satisfied or very satisfied.
This negative view derives, in part, from the unpopularity of Congress. To isolate that factor, we decided to vary the phrasing of our question, alternately asking respondents about the financial reform approved by Congress and about the financial reform signed into law by President Obama. When the Obama phrasing was used, respondents (and especially Democrats) rated their level of satisfaction higher. But even then, overall satisfaction reached only 52 percent. Thats a meager result for a bill aimed at providing better consumer protection.
To explore the reasons for the widespread dissatisfaction, the Financial Trust Index asked two questions related to the key provisions in the bill: the creation of the Consumer Financial Protection Agency (CFPA) and the new regulation of banks to prevent future bailouts. The responses suggest that the Dodd-Frank bill failed to win over American voters on both counts. Only 34 percent of respondents think that the CFPA is a useful agency to protect consumers. The majority of the opposition seems to come from the perception that the CFPA represents useless bureaucracy (27 percent) and overreaching of government power (25 percent). Fourteen percent think that it is an insufficient first step to protect consumers. Not surprisingly, there is a huge ideological division on this issue between Republicans and Democrats. The worrying aspect for the Obama administration, however, is that it has lost the support of independents (most of whom oppose the CFPA) without energizing Democrats (only 58 percent of whom support the agency).
The administration has done even worse in selling the financial reform as a way to prevent future bailouts. Only 33 percent of respondents think that the new banking regulation will achieve that goal. The administration hasnt even succeeded in convincing Democrats (53 percent dont think the regulation will suffice), and it has lost independents by a wide margin (70 percent are skeptical). Such unpopularity is surprisingand perhaps indicative of the Dodd-Frank acts actual weakness.
Paola Sapienza is a professor of finance at the Kellogg School of Management at Northwestern University. Luigi Zingales is a professor of entrepreneurship and finance at the University of Chicago Booth School of Business and a contributing editor of City Journal.