Persistent Leadership: Presidents and the Evolution of U.S. Financial Reform, 1970-2007

In July 2010, President Barack Obama signed into law a sweeping program of financial regulatory reform popularly known as the Dodd-Frank Act. This act was a response to the financial crisis and attempted to address weaknesses widely perceived in the existing regulatory regime. The act in substantial degree reversed a 40-year history of financial deregulation. There is little question that President Obama played a central role in the passage of the Dodd-Frank Act (Woolley and Ziegler, 2012). The history of financial reform from 1970 to 2007 can be seen as one of repeated short-term presidential failure: successive presidents supported large reform efforts, but legislative results fell far short of their proposals. Major reforms were proposed; often nothing was passed. On the other hand, years of remarkably sustained and consistent presidential advocacy of deregulation ultimately culminated in the broad deregulation of the financial sector. Nonetheless, presidents did not achieve all their goals, most notably those concerning simplification of bureaucratic structure of regulatory agencies. That failure, together with the persistent presidential support of such reforms, calls out for further reflection. Financial reform has usually not been an especially visible issue in public debate, and the limited political science literature on the topic has not agreed on the impact of presidents in financial regulatory reform. As a result, one might, with some justification, think that presidents have been on the sidelines in this issue area. In this article, I argue that such a view is incorrect. I argue below that presidents shared a common set of objectives concerning the deregulation of financial institutions that persisted despite differences in party, ideology, or extent of divided government. They pursued those objectives with considerable consistency and, over time, success. In this article, I develop this argument through an examination of the financial deregulatory movement that dominated policy from 1970 to 2007. I argue that these issues and events have distinctive features that can illuminate and inform our understanding of presidential leadership. I begin with a review of some relevant political science literature in the areas of financial regulation and presidential agenda setting. Second, I discuss some distinctive features of the political environment of financial regulation that affect presidential strategy. Next is a brief review of some of the substantive problems that have concerned reformers. Finally, I seek to demonstrate that there was, in fact, substantial interest in, and advocacy for, financial deregulation that spanned presidencies and parties. I argue that this continuity arose from the distinctive political characteristics of the issue area and the nature of the job of the president, broadly conceived. Prior Literature Two areas of prior political science literature are particularly relevant to this project. First is the relatively small number of works explicitly addressed to financial regulatory matters. The second is the far more extensive body of research on presidential leadership in agenda-setting and in law-making. Financial Regulation There has not been a large literature in political science on financial regulation and deregulation. The exceptions, many quite excellent models of research, have often been focused on regulatory choice. That focus, by nature, does not lend itself to an understanding of the life course of new policy initiatives. For example, in a fine article, Krause (1997) did not incorporate any measures of presidential behavior because the president did not play a "regular role" (emphasis in original) throughout the sample period in bank regulation (533n27). Krause cited Meier (1985) to the effect that in financial regulation, presidents "only play a significant role in exceptional situations" (76) and their involvement is "extremely sporadic" (Krause 1997, 533n27). …