NCPA - National Center for Policy Analysis

After Five Years, Dodd-Frank is a Failure

July 21, 2015

The Dodd-Frank law itself declared that it would "end too big to fail" and "promote financial stability." Dodd-Frank was based on the premise that the financial crisis was the result of deregulation. Yet George Mason University's Mercatus Center reports that regulatory restrictions on financial services grew every year from 1999 to 2008. It wasn't deregulation that caused the crisis, it was dumb regulation.

Rep. Jeb Hensarling, chairman of the House Financial Services Committee, analyzes the effects of Dodd-Frank, finding that it has not ended too big to fail banks and it has not helped the average American:

  • Government figures indicate that the country is losing on average one community bank or credit union a day.
  • Before Dodd-Frank, 75 percent of banks offered free checking. Two years after it passed, only 39 percent did so — a trend various scholars have attributed to Dodd-Frank.
  • Bank fee have also increased due to Dodd-Frank, leading to a rise of the unbanked and underbanked among low- and moderate-income Americans.

Hensarling also finds that Dodd-Frank has not promoted financial stability, but has rather concentrated power in the government's hands:

  • Post-crisis regulatory mandates have reduced liquidity of fixed income assets in some markets, or the degree to which those assets can be easily bought and sold.
  • Because of Dodd-Frank, financial markets will have less capacity to deal with shocks and are more likely to seize up in a panic.
  • The "heightened prudential supervision" Dodd-Frank allows the Fed to exercise over "systemically important" banks essentially places them under government control.
  • Dodd-Frank requires that bank holding companies worth $50 billion or more must submit a "living will" to the Federal Deposit Insurance Corp. and the Fed.

Overall, Rep. Hensarling concludes that failure of Dodd-Frank to achieve its stated goals should encourage reform or replacement of the law.

 

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