Dodd-Frank at 3: From bad to worse
It's been three years since the passage of Dodd-Frank, Washington's response to the housing market collapse, the failure of major financial firms, and the resulting shock to the economy in 2008. Are Americans better off today because of it?
No. Dozens of rule-makings have been completed, but a backlog of hundreds more is prolonging regulatory uncertainty and inhibiting economic growth. Consumers are facing dramatically higher banking fees and fewer service options because of new government constraints on credit.
And all because of policymakers' deeply flawed diagnosis of the financial crisis.
According to Bankrate's latest survey, only 39 percent of banks in 2012 offered a checking account with no minimum balance requirement and no monthly fee, compared with 45 percent in 2011 and 76 percent in 2009. Meanwhile, the minimum account balance needed to avoid a monthly fee has nearly doubled in the past two years, to $6,118.
Although three years in, the full effects of Dodd-Frank have yet to hit. Some of the most significant and costly regulations, such as the Volcker Rule, are still winding their way through the bureaucracy. The Volcker Rule would generally ban proprietary trading, i.e., transactions in which banks use federally insured deposits and other funds to supplement their earnings. Ratings agency Standard & Poor's estimated the rule collectively could cost U.S. banks as much as $10 billion annually.
Of enormous consequence is the Consumer Financial Protection Bureau, which Dodd-Frank endows with unparalleled powers over virtually every consumer financial product and service. The CFPB has been aggressively restructuring the mortgage market; devising restrictions on credit bureaus, education loans, overdraft policies, payday lenders, credit card plans, and prepaid cards; and amassing an Orwell-worthy database on all manner of consumer spending. The Government Accountability Office is preparing to investigate the data grab.
In coming months, the bureau is expected to issue final guidance for its “ability-to-repay” regulations, under which the lender — not the borrower — can be blamed for a loan default and sued by homeowners if they cannot make their payments and face foreclosure.
For all its vast regulatory scope, Dodd-Frank utterly fails to address some of the principal causes of the 2008 crisis. For example, Fannie Mae and Freddie Mac, the government-sponsored enterprises that hold nearly 90 percent of the mortgage market, remain in conservatorship.
Taxpayers also remain susceptible to future bailouts of big banks. Under Dodd-Frank the Financial Stability Oversight Council is tasked with designating specific firms as “systemically important financial institutions.” But doing so reinforces the perception that the designated firms are “too big to fail.” In fact, the taxpayer “safety net” for these big firms is bigger than ever. The council just proposed the designation for American International Group, Prudential Financial and GE Capital, in fact.
Entangled in its regulatory zeal, Congress evidently ignored the fact that Dodd-Frank further empowers the very regulators that failed to prevent the financial crisis. Lawmakers instead have saddled consumers and the economy with thousands of costly regulations that provide no reason to celebrate the third anniversary of Dodd-Frank.
Let's hope lawmakers use year four to undertake reforms that will benefit, not harm, the nation.
Diane Katz is a research fellow in regulatory policy at The Heritage Foundation (heritage.org).
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- Roethlisberger hurting after hit to chest by Ravens’ Upshaw
- Worker at Mt. Lebanon church injured in fall
- Steelers notebook: RT Gilbert not in danger of losing his job
- Minnesota governor: Peterson should be suspended
- Fed speculation fuels stock gains; Dow rises 100 points
- Southmoreland student injured in school assault
- Wednesday’s scouting report: Red Sox at Pirates
- Police: Barracks ambush suspect sought mass murder
- Pittsburgh event uses humor to get the word out on stroke prevention
- Penguins notebook: Martin not concerned about expiring contract
- Gluten-Free Living Support Group meetings in Mt. Pleasant open to all