Dodd-Frank and its Aftermath: The Need to Accelerate Reform

By at 12 April, 2017, 8:01 am


Second in a Two-Part Series

by Raymond J. Keating-

The emphasis on the regulatory front has switched dramatically in a short period of time. During the Obama administration, the default was to increase regulation – in fact, it was eight years of hyper-regulation. Part of that hyper-regulation was passage of the Dodd-Frank financial regulatory law.

In the first piece in this two-part series, it was noted that with the credit and economic mess of 2008-09, Congress and the Obama White House rushed in to regulate – and by the way, failed to redress the actual underlying causes of the credit mess. Now, there is an emphasis on regulatory relief and reform in general, including talk of dealing with the massive Dodd-Frank mess.

Hensarling and Dodd-Frank Reform

Last month at the American Bankers Association summit in Washington, as reported by The Washington Examiner, House Financial Services Chairman Jeb Hensarling “told the bankers to keep hope alive for a legislative package, the Financial Choice Act, he is planning to replace Dodd-Frank, saying that he would reintroduce it.” He also acknowledged, though, that it will be difficult to get broad-based reform through the U.S. Senate.

As was reported: “The Choice Act, previously introduced last Congress and being revamped now, aimed to reduce a wide range of regulations for banks that choose to maintain high levels of capital. But it contained a number of provisions that could be broken out, touching mortgage regulation, the Federal Reserve, restrictions on bank trading, and the Consumer Financial Protection Bureau, which Hensarling referred to as a ‘tyranny.’”

The Financial Choice Act included sections focused on, for example, providing “an ‘off-ramp’ from the post-Dodd-Frank supervisory regime and Basel III capital and liquidity standards for banking organizations that choose to maintain high levels of capital;” actually ending “too big to fail” and bank bailouts; reining in the excessive powers of and fundamentally reforming the Consumer Financial Protection Bureau; imposing accountability on financial regulators, such as by making “all financial regulatory agencies subject to the REINS Act, bi-partisan commissions, and place them on the appropriations process so that Congress can exercise proper oversight,” and requiring “an across-the-board requirement that all financial regulators conduct a detailed cost-benefit analysis of all proposed regulations;” and aiding small business in meeting their financial capital needs by repealing “sections and titles of Dodd-Frank, including the Volcker Rule, that limit capital formation” and rolling back over-regulation on small, community banks.

In an April 5 op-ed, U.S. Rep. Dennis Ross (FL) summed up, “President Obama promised Dodd-Frank would ‘lift the economy,’ but once again, he gave the American people false hope. Instead, in the years since it was enacted, the big banks have grown bigger, while community financial institutions are disappearing at an average rate of one per day. Consumer credit has tightened up, and low and middle-income borrowers are feeling these effects more than most. Although many financial service providers are already regulated at a state and federal level, the CFPB creates excessive red-tape for industries across the entire financial services spectrum without accountability to Congress.”

And writing at , U.S. Rep. Blaine Luetkemeyer (MO) explained:

“The CFPB is an agency unlike any other in American history. It has a single, unaccountable director. It draws unlimited funds from the Federal Reserve, outside of the purview of Congress. And the CFPB makes law through its own enforcement of the rules that it promulgates. A federal court even found its structure to be unconstitutional, and it is the subject of ongoing litigation.

“It’s no surprise that the very real fear that the CFPB might deem something unacceptable stops innovation and the development of new products, and it makes it tougher for consumers to get access to affordable credit and services in a timely fashion. All the while, it has not addressed the underlying causes of the 2008 financial crisis.”

At the ABA Summit, Hensarling also said that the House would be ready to move on any bills coming out of the Senate, would introduce components of the Choice Act as standalone legislation in hopes of those bills passing, and was “highly encouraged” by talks with the Trump administration about achieving deregulation via executive actions.

If the current Congress and White House are serious about rolling back the ills of misguided, unnecessary and costly regulation, then the Dodd-Frank monstrosity must be reined in.


Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

Keating’s latest book published by SBE Council is titled Unleashing Small Business Through IP: The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment and it is available free on SBE Council’s website here.


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