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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The Financial Stability Oversight Council announced last week that it had preliminarily designated MetLife as a systemically important financial institution. Yet MetLife's designation was a foregone conclusion since the FSOC would not overturn a decision the Financial Stability Board, the Treasury and the Fed had already approved.
The power of bank living wills lies beyond what's written down on paper. Living wills are a gateway for regulators to change the company itself. If companies' living wills are not to regulators' liking, regulators can require the institutions to restructure, raise capital, reduce leverage, divest or downsize.
History shows that the FDIC cannot efficiently resolve a large bank unless it sells the bank to a larger healthy institution. Whole-bank purchase resolutions are what created many of today's "too-big-to-fail" institutions. The best use of annual Orderly Resolution Plans is to require the FDIC to plan for an efficient break-up of the largest banks in the FDIC bank resolution process.
The Dodd-Frank Act has failed to achieve its stated goals. Instead, evidence suggests that Dodd-Frank has reinforced investor’s perceptions that the largest financial institutions enjoy an extended government safety net. Rather than ending too-big-to-fail, Dodd-Frank’s provisions create new uncertainties around the resolution process for large financial institutions.
As implementation continues, it is increasingly clear that Dodd-Frank's unbalanced mix of new regulatory powers and vague goals are causing over-regulation and reducing economic growth.
Today marks the four-year anniversary of the Dodd-Frank Act. The financial regulatory bureaucracy has swelled to historic proportions and many of Dodd-Frank’s new rules are restricting credit and economic growth with questionable benefits to safety and soundness. So far, regulators have done little to consider the economic impact of their actions. But Congress soon may force them to.
Four years after it took effect, Dodd-Frank's pernicious effects have shown that the law's critics were, if anything, too kind. Dodd-Frank has already overwhelmed the regulatory system, stifled the financial industry and impaired economic growth.