Should banking regulations be rolled back? | The Tylt
President Trump wants to roll back Obama-era regulations that were passed after the Great Recession to prevent banks from creating another financial collapse. He and his supporters say the regulations do not work and unfairly burden banks and consumers with extra costs. Critics of banks say the regulations do work, and actually don't go far enough.What do you think? 💰
Should banking regulations be rolled back?
Conservatives say Dodd Frank is an example of government overreach that incentivizes the wrong things. Dodd Frank was created to wrap banks in red tape to prevent them from engaging in the kind of risky behavior that led to the market crash in 2008. What really happened is the law killed a bunch of small banks, who couldn't handle the costs of the regulation, but left big banks just as big as they were before.
"Regulatory compliance can be a particular challenge for small banks with limited compliance expertise," write the report's authors, Hester Pierce and Robert Greene. "Regulatory expenses absorb a larger percentage of small banks' budgets than of their larger counterparts' budgets."
The current regulatory environment ensures that small banks die off while large banks remain largely untouched.
Though some consolidation – particularly outside of the largest few – is probably a good thing, it should be driven by the market, independent of regulatory and short-term interest rate considerations and regulators should give new, innovative firms sufficient space and flexibility to survive. Crippling community banks under a heavy regulatory weight is not the way to bring about structural change.
Dodd Frank's supporters say the law is actually working. No law is perfect—this one included, but things can be changed and fixed. The regulations can be fixed to address the issue of banks being too small to survive.
One could, if so inclined, read these facts as an argument against Dodd-Frank. Rather than employing people to engage in lucrative trading, banks are now employing people to deal with an avalanche of red tape from regulators. But to the extent that tying up banks in red tape and getting them to do less trading is what you want to see happening, the fact that it is in fact happening is a big deal.
Dodd-Frank made the banking system safer. Removing those regulations won't hurt anyone immediately, but reality has a way of catching up.
And unlike with some other kinds of regulation, if banks are allowed to engage in excessively risky behavior, there will be few if any immediate victims. Profits will soar, loans will flow, wonks will complain, but ordinary people won't really notice. Bank regulation was extremely lax for most of George W. Bush's term in office, and it was fine. Until one day it suddenly wasn't, and the world was plunged into financial crisis.
Spicer:Dodd-Frank "not doing the job."— Charles P. Pierce (@CharlesPPierce) February 3, 2017
CFPB has returned more than $5B to cheated consumers.
Ask Wells-Fargo how well it's doing its job.