After Five Years, Dodd-Frank Is a Failure

by VERONIQUE DE RUGY July 20, 2015 2:13 PM 

When the Dodd-Frank Act took effect on July 21, 2010, critics were fast to predict that the 2,300 page-long legislation, which passed the House without a single Republican vote and received only three GOP votes in the Senate would fail. Tomorrow will mark the five-year anniversary of Dodd-Frank and its unfortunate distorting effects. Just as when it was passed, the legislation remains unable to address the problems it was intended to. 

  The legislation has overwhelmed the regulatory system, stifled the financial industry, impaired economic growth, and done nothing to correct the pernicious effects of “too big to fail.” But that’s only the beginning: Many more of its regulations still need to be written, some several years down the road, all of which injects massive uncertainty into the financial industry. Here is a round-up of interesting articles to read before this sad anniversary. First, we have a great piece by Chairman Hensarling in the Wall Street Journal (“After Five Years, Dodd-Frank is a Failure.”). Thankfully for us, the chairman is as committed to getting rid of Dodd-Frank as he was to getting rid of the Ex-Im Bank. I wish him the same success and more. The whole thing is worth a read, but here are a few paragraphs: Dodd-Frank was supposedly aimed at Wall Street, but it hit Main Street hard. 

Community financial institutions, which make the bulk of small business loans, are overwhelmed by the law’s complexity. Government figures indicate that the country is losing on average one community bank or credit union a day. Before Dodd-Frank, 75% of banks offered free checking. Two years after it passed, only 39% did so—a trend various scholars have attributed to Dodd-Frank’s “Durbin amendment,” which imposed price controls on the fee paid by retailers when consumers use a debit card. Bank fees have also increased due to Dodd-Frank, leading to a rise of the unbanked and underbanked among low- and moderate-income Americans. Has Dodd-Frank nevertheless made the financial system more secure? Many of the threats to financial stability identified in thelatest report of Dodd-Frank’s Financial Stability Oversight Council are primarily the result of the law itself, along with other government policies. There’s also a new report by John Berlau at CEI that shows how Dodd-Frank has stifled competition among the banks even more so than before the financial crisis.

 A failure to approve new banks, for instance, means that those “too big to fail” banks are now more entrenched than ever. In the last five years, regulators have approved only one new bank, as opposed to an average of 170 new banks per year before 2010. As Berlau notes: “This lack of new bank competitors is one important reason why a large bank failure could severely curtail the supply of credit and availability of financial services. That in turn sets the stage for a continuing cycle of bailouts.”  The New York Times has an interesting piece (“Fannie and Freddie are Back, Bigger and Badder Than Ever“) by Bethany McLean. It’s must read recap of the promises of what Freddie and Fannie would achieve vs. actually happened, along with the failure to reform two agencies in the aftermath of the financial crisis.    The proposed solutions for this mess? Among other things,

 Senator Warren believes it’s time to bring back the Glass-Steagall Act, a law that would require big banks to divide commercial and investment banking. Most economists and Federal Reserve policymakers disagree that the repeal of Glass-Steagall had anything to do with the financial crisis but, Democratic presidential candidates Bernie Sanders Martin O’Malley support the idea nonetheless. Hillary Clinton hasn’t said yet what she thinks of the proposal. However, according to Kevin Cirilli at The Hill, the White House is distancing itself from this push: The White House wants to keep its distance from a liberal push to re-implement legislation that would break up big banks… “At this point, we believe that the kind of implementation of Wall Street reform is the most effective way to protect our economy and middle-class taxpayers,” White House press secretary Josh Earnest told reporters at a press briefing Friday when asked whether President Obama supports it. … Earnest said the administration is still focused on implementing the 2010 Dodd-Frank Wall Street Reform law.   “Wall Street reform has been incredibly effective at reforming our financial system in a way that looks our for the interests of middle-class families and taxpayers,” Earnest said.

Via: National Review

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Insight - As U.S. default threatened, banks took extraordinary steps

NEW YORK (Reuters) - As the United States threatened to default on its debt last month, major U.S. banks set up war rooms, spent many millions of dollars on contingency planning and, in some cases, even prepared to underwrite federal government benefits.

In a series of interviews with top bank executives, new details emerged about the extent of the contingency planning that was undertaken before and during the 16-day government shutdown and as a potential default loomed.

The planning for worst-case scenarios didn't come cheap. JPMorgan alone has spent more than $100 million on contingency planning for U.S. budget crises in recent years including this one, sources close to the bank say. It has reviewed and analyzed thousands of trading contracts, updated computer systems to handle fiscal emergencies, hired consultants, and built new models to figure out what might happen to securities prices.

Via: Yahoo

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Examiner Editorial: Politically connected banks got bigger bailouts

It should come as no surprise that politically connected banks received larger bailout loans from the federal government during the 2007 financial crisis than banks that spent less on lobbying and campaign contributions. That's the conclusion of a new analysis by Prof. Benjamin Blau of Utah State University. His findings were based on data from the Federal Reserve and published by the Mercatus Center at George Mason University.

Blau noted it was “unlikely" that the Fed intended "to provide political favors to banks with the most political connections.” But whatever the motive, the pattern was stark. Banks that received bailout loans spent 72 times more on lobbying in the decade before the meltdown than banks that got no loans. Blau also found that 15 percent of the banks that received loans employed politically connected individuals. Only 1.5 percent of banks with politically connected employees got no loans.

There are three potential reasons for the skew, as Blau indicates:

1. The Fed may simply have had more information on the politically active banks, which would have made it easier to approve the loans.

2. The politically active banks were probably more likely to seek Fed loans.

3. Because of their political sophistication, these banks may have taken greater risks believing they would be rescued by the Fed if anything went wrong.

Following the 2007 crisis, Congress passed Dodd-Frank, a massive tome of a bill that Americans were told would prevent a repeat of the financial meltdown. In fact, Dodd-Frank all but guarantees that big banks stay big and small banks struggle to compete. “Dodd-Frank has not done enough to coral ‘too big to fail’ banks and, on balance, the act has made things worse, not better,” said Richard Fisher, president of the Federal Reserve Bank of Dallas.

Via: Washington Examiner

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New year brings hundreds of new laws

It's true. Someday, everything is going to be illegal.

Take California, for instance. Californians will celebrate the new year by welcoming 876 new laws that need bureaucrats to monitor and enforce.

And we wonder why government grows?

Homeowners behind on their mortgage payments and negotiating with their banks to find a way to work things out won't have to worry about getting a surprise foreclosure notice.

Women will have expanded access to birth control, as registered nurses will be able to dispense contraceptives such as the pill.

Apartment dwellers concerned about the possibility of carbon monoxide poisoning will be able to breathe easier.

Employers will not be allowed to require workers or job applicants to divulge their social media accounts or provide passwords to them.

Those are among the legal changes in California that will kick in Tuesday as a result of some of the 876 laws signed by Gov. Jerry Brown in 2012. By historic standards it was a somewhat low number but was the most new laws put on the books in the state since 2006.

Just as an aside, are nurses able to judge drug interactions well enough to allow them to dispense contraceptives? It is amazing that there has been a political decision to allow nurses to do this. There is no medical advantage and, in fact, may prove to be tragic if a nurse mistakenly writes a prescription for the pill for a patient who, for whatever reason, shouldn't get it.

Via: American Thinker

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Daily Caller: With Landmark Lawsuit, Barack Obama Pushed Banks to Give Subprime Loans to Chicago’s African-Americans

President Barack Obama was a pioneering contributor to the national subprime real estate bubble, and roughly half of the 186 African-American clients in his landmark 1995 mortgage discrimination lawsuit against Citibank have since gone bankrupt or received foreclosure notices.

As few as 19 of those 186 clients still own homes with clean credit ratings, following a decade in which Obama and other progressives pushed banks to provide mortgages to poor African Americans.

The startling failure rate among Obama’s private sector clients was discovered during The Daily Caller’s review of previously unpublished court information from the lawsuit that a young Obama helmed as the lead plaintiff’s attorney. [RELATED: Learn about the 186 class action plaintiffs]

Since the mortgage bubble burst, some of his former clients are calling for a policy reversal.

“If you see some people don’t make enough money to afford the mortgage, why would you give them a loan?” asked Obama client John Buchanan. “There should be some type of regulation against giving people loans they can’t afford.”

Banks “were too eager to lend to many who didn’t qualify,” said Don Byas, another client who saw banks lurch from caution to bubble-inflating recklessness. [RELATED: Obama's Citibank plaintiffs hit hard when housing bubble burst]

“I don’t care what race you are. … You need to keep financial wisdom [separate] from trying to help your people,” said Byas, an autoworker.

Via: The Daily Caller

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