NCPA - National Center for Policy Analysis

Dodd-Frank Creates Obstacles, Restricts Growth

October 24, 2011

Just over one year ago, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act into law.  Dodd-Frank, a response to the 2008 financial collapse, was intended to increase oversight of massive financial institutions, such as large banks and stock brokers, and to monitor consumer transactions, such as payday loans and mortgages.  It was meant to address the concern that financial institutions in the United States had grown "too big to fail" and would need to be "bailed out" by the government to prevent a banking sector collapse, says Karlyn Gorski, a research assistant with the National Center for Policy Analysis.

However, Dodd-Frank gives the federal government increased power to control not only large banks, but also small banks and businesses.

  • Ironically, financial-sector concentration has continued to increase.
  • Rep. Ed Royce (R-Calif.) notes that before the banking crisis, the top 10 banks in the United States held 55 percent of total banking sector assets; today, they hold 77 percent.

Though Dodd-Frank is still in the implementation phase, it is becoming clearer that this complex legislation imposes regulatory burdens that will stifle efforts to grow businesses, but will not result in beneficial financial reforms.  Indeed, most banks are expected to make up for lost revenue from regulations through increased fees for checking accounts or higher interest on loans.

A major concern is that small businesses will be unable to obtain financing as a result of Dodd-Frank.  When there are more restrictions on the loans banks can make, fewer loans are made.  In fact, loans to small businesses have tumbled to a five-year low.  Because the law governs everything from traditional small business loans to personal credit cards and home equity loans, access to capital for small businesses will be restricted.

Source: Karlyn Gorski, "Dodd-Frank Creates Obstacles, Restricts Growth," National Center for Policy Analysis, October 24, 2011.

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