Dodd-Frank is the largest overhaul of the financial regulatory system since the Great Depression. It is 2,319-pages long, compared to Glass-Steagall (47 pages), Gramm-Leach-Bliley (145 pages), and Sarbanes-Oxley (66 pages). It will take financial institutions more than 58 million hours to file all the necessary paperwork — the equivalent of 29,000 full time employees working year round on compliance. It creates multiple new regulatory bodies in Washington costing taxpayers millions of dollars each year.
Dodd-Frank’s effects on the economy, industry, and consumers are far-reaching. AEI scholars Peter Wallison, Phil Swagel, Charlie Calomiris, and Alex Pollock, have been following implementation closely. Here is a collection of their work and other selected pieces on the topic.
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Government-directed lending policies create an unfavorable financial environment that pushes resources out of the financial sector, reducing business and consumer access to credit and limiting economic growth.
Under Dodd-Frank, FSOC has the authority to designate any financial firm as a systemically important financial institution if the institution’s “financial distress” will cause “instability in the US financial system.” Unless the power of the FSOC is curbed by Congress we may see many of the largest non-bank financial firms brought under the control of the FSOC and ultimately the Fed.
Just-released transcripts of 2008 Federal Reserve policy meetings provide a needed reminder of how Washington dithered as the nation’s financial system nearly collapsed. Has anything happened in the subsequent five years to make a repeat less likely?
It is difficult to see how asset managers, of whatever size, could create systemic risk. By moving against an industry that cannot create systemic risk, the FSB and FSOC showed that their ambition wasn’t to prevent the next financial crisis, but instead to extend their power. That alone should be reason for repealing the authority of the FSOC under the Dodd-Frank Act.
In a September 2013 report, the Office of Financial Research (OFR), a US Treasury agency set up by the Dodd-Frank Act, suggested that the asset management industry could be a future source of systemic risk. However, the chances that an asset manager could trigger a systemic event is vanishingly small. The FSOC should spend its time elsewhere.
After three years of regulatory wrangling, the Volcker Rule is finally out. The rule sharply curtails the types of trading activities that banks whose deposits are insured by the government can engage in. Volcker Rule supporters argue that it will make the financial sector a safer place. Don't bet on it.
For more than two years, Congress, the insurance industry and insurance consumers have been waiting for the report of the Federal Insurance Office (FIO). The report was supposed to make recommendations for the modernization of U.S. insurance regulation, and it finally arrived last week, landing with a thud on desks in Washington and elsewhere.
The question of whether the Dodd-Frank Act is good or bad is easily resolved once it becomes clear that it did not address the causes of the financial crisis. Unnecessary regulation can’t be good.