Now We Are All Reformers

A View of Financial Reform by Marshall Sonenshine. The era of the corporate finance and M&A professional who plies his trade in a robust financial market that functions predictably remains over at present.

The era of the corporate finance and M&A professional who plies his trade in a robust financial market that functions predictably remains over at present. We do not know when a predictable robust financial environment will return. We are two years into a financial crisis that led to a dramatic reduction - by roughly half - in the size of the US and global M&A markets. We are six months into the life of a watershed piece of financial reform legislation that remains the central repository of American financial policy change designed to address the debacle in whose wake we "deal people" continue to work. Today it is standard fare in finance conferences to speak about financial reform. The deal business depends on a return to normalcy in financial markets in order to return to normalcy in deal markets.

The Dodd-Frank Wall Street Reform and Consumer Protection Act itself is not about corporate finance and M&A per se, and it is certainly not about the nuts and bolts of doing deals. It is a now famously imperfect piece of legislation, but it is also an essential pathway - the only one the United States Congress has established - towards what we hope will be a sounder and more secure financial landscape in which all financial participants do business. Dodd-Frank requires us all to think collectively about reform even as particular institutions inevitably pursue parochial interests concerning financial regulation.

Today, an understanding of Dodd-Frank and the broader subject of financial reform is as essential to the finance professional as is an understanding of credit markets, equity markets, corporate strategy, corporate tax policy, and a myriad of other issues that are the context in which business takes place. We deal people depend on financial reform working to re-establish a sound financial market every bit as much as we depend on other macro issues that drive markets. We need banks to lend. We need corporations to invest. We need derivatives to be properly priced. We need confidence to be restored. We can and must debate how to have all these essential attributes of a properly functioning market, but after the Financial Crisis of 2008, few among us seriously debate the need for some kind of reform. Few among us would rely on palliatives like "what happened can only happen once in a century." The workaday M&A practitioner, in addition to financial institutions leaders, derivatives traders and risk managers and other finance professionals need to know about Dodd-Frank. As we value predictability in financial markets, we need some kind of reform to take hold successfully, whatever our individual position is on particular provisions or policies within Dodd-Frank.

A new era of financial reform began officially on June 30, 2010 with the passage by the United States Congress of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Weighing in at over 2,000 statutory pages the Act has been called everything from real reform to Regulation Lite. Several prominent experts have praised it while others have criticized it, including one who dismissed it as the worst piece of legislation in United States history. In the main, Dodd-Frank will not solve in one stroke all the problems that rendered reform so urgently needed, no legislation can. In all events Dodd-Frank on its terms is, like all legislation, a balancing of competing demands and agendas in American society and one that often frames broad policies and principles but quite intentionally leaves numerous issues to federal government study and to an often intentionally protracted period of regulatory rule making.

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