Dodd Frank — Time for Change

Dodd Frank — Time for Change

© David Burton 2017

Radical Islam

     One of Donald Trump’s actions after assuming the office of president was to issue an executive order concerned with regulation of America’s financial system. This executive order was summarized as follows:

”President Donald Trump’s recent executive order detailed seven core principles for regulating the U.S. financial system. The order calls for “efficient, effective” financial regulations that “foster economic growth,” which means that it is incompatible with the bulk of the Dodd–Frank Act. Dodd–Frank’s answer to the 2008 financial crisis was to institute more federal regulation and oversight—despite the fact that this approach has repeatedly failed in the past. Worse, Dodd–Frank did little to address the root causes of the crisis and simply expanded the federal safety net for financial firms. Congress should repeal the Dodd–Frank Act.” (Ref. 1)

     Dodd- Frank turned out to be an example of bureaucratic excess that was extremely counterproductive in many ways. “The 2010 Dodd–Frank Wall Street Reform and Consumer Protection Act spawned approximately 400 separate rulemakings across the financial sector, and was the most extensive financial regulatory bill since the 1930s.
     “It expanded the authority of existing federal regulators, created new federal agencies, and dramatically altered the regulatory framework for several distinct financial sectors.
     “Critics have argued that the Dodd–Frank Act failed to adequately address the causes of the 2008 financial crisis, imposed unnecessarily high compliance burdens on firms, worsened the too-big-to-fail problem, and contributed to the unusually sluggish recovery. [Emphasis mine] (Ref. 1)

     One unintended consequence of the introduction of Dodd-Frank rules and regulations intended to control big banks and prevent adverse effects on the American economy from their possible misdeeds was the reduction in the number of small banks, even those with squeaky clean balance sheets. “As unintended consequences go, it’s a doozy.
     “The end result of the crackdown on big banks – the alleged villains of the financial crisis – is fewer small banks.
     “{By 2013, with Dodd-Frank in force, }The number of FDIC-insured institutions ha{d} fallen below 7,000 for the first time since federal regulators began keeping track, during the Great Depression. The banks that . . . disappeared {were| almost exclusively those with less than $100 million in assets [Emphasis mine] – a lot of money for a human, but small change for a bank.
      - - -
     “The road to small business hell is paved with the best of government intentions.
     “. . . big banks were painted as the bad guys by the media, Occupy Wall Street protesters and grandstanding legislators. More regulations, this amateur chorus concluded, was what was needed.
     “The problem is that a rising tide of regulation sinks small craft first. Big banks have the scale to weather the added costs that each new wave of regulation sends over their bows. The little banks that served as life boats for fee-conscious consumers {were} swamped by the 2,319 pages of Dodd-Frank and its grand inquisitor, the Consumer Financial Protection Bureau, the brainchild – I use the term loosely – of U.S. Sen. Elizabeth Warren.” (Ref. 2)

     Now in mid-2017, a Republican-led overhaul of the Dodd-Frank banking law is moving toward a House floor vote with sharp divisions between Democrats and Republicans. But, one section of the proposed overhaul “seems to meet with widespread approval: regulatory relief for small banks.
     “Known as community banks for their local focus, these institutions are mother-and-child figures on Capitol Hill, inspiring love and support on both sides of the often miles-wide aisle. There's far-ranging agreement on the need to lighten the government-imposed burden on the smaller lenders.
     “Last fall, Sen. Elizabeth Warren, D- Massachusetts, one of the finance industry's most fiery detractors, tweeted her support for helping them, saying ‘she supports targeted relief for small lenders.’
     " ‘It's unfair to community banks’ to impose many of the same strictures that Dodd-Frank loads onto large banks, said Mike Mayo, an independent bank analyst. ‘They have fewer resources’ than the big players.
     “Whether the small lenders will get what they want is another question. The Dodd-Frank revamp legislation, passed last month by the House Financial Services Committee on a party-line vote, may make it through the GOP-controlled House. But it faces a much tougher test in the Senate, where the Republican majority is not as commanding. And if the measure fails, so will small banks' hopes for a less onerous regulatory load.
     “To community banks, Dodd-Frank imposes ‘rigid, inflexible rules’ that hinder them from giving local borrowers the money ‘to purchase or improve a home, or start or grow a small business,’ wrote Camden Fine, president of the Independent Community Bankers of America, their trade group.
     “Indeed, a 2014 survey of 200 small lenders by the Mercatus Center at George Mason University showed that higher regulatory compliance costs had prompted 6 percent of them to stop offering home loans. What's more, Mercatus indicated, Dodd-Frank has forced many small lenders into mergers, shrinking consumer choices.
     “These institutions provide most of the nation's small-business, commercial real estate and agricultural loans, accounting for almost one-quarter of U.S. bank lending, a Harvard Kennedy School study found. Technically, a community bank is one that's local in scope, not affiliated with a major institution and holding between $1 billion and $10 billion in assets, according to the Federal Deposit Insurance Corp.
     “The legislation headed for a House vote, called the Financial Choice Act, aims to soften the 2010 financial reform law, passed in the wake of the financial crisis and Great Recession. Republican lawmakers say Dodd-Frank has hindered the nation's economic expansion and the bank lending needed to fuel it.
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     “It also would curb the power of the Dodd-Frank-created Consumer Financial Protection Board, which is set up as independent agency not under congressional supervision. For small banks, the CFPB pullback would be a special boon because they have fewer staffers to combat its complaints.
     “The {proposed} bill also would loosen restrictions on mortgage lending that are harder for community banks to meet, make raising equity capital easier for more of them and reduce the amount of data they need to report. . .” (Ref. 3)

     “Rewarding success and punishing failure is the best way to ensure more of the first and less of the second. That’s common sense, but Congress has a knack for spreading confusion. The Obama-era financial services law called Dodd-Frank was intended to prevent financial practices that triggered the Great Recession of 2008, but its mountains of regulations have picked the pockets of consumers rather than protecting them. [Emphasis mine] An opportunity is at hand to restore balance between freedom and responsibility in the marketplace.
     “The House is expected to vote . . . on the Financial Choice Act, a bill endorsed by the Financial Services Committee last month in the usual party-line vote. The measure would enable the Securities and Exchange Commission to triple the penalties imposed on companies for fraudulent practices. It would take taxpayers off the hook for bailouts, ensuring that no company is ‘too big to fail.’ . . . Instead of using taxpayer money to replace losses, insolvent companies would be sent into the bankruptcy courts. Rather than hit Americans in the wallet, the White House predicts the legislation could save $35 billion over 10 years.
      - - -
     “The blizzard of federal regulations unleashed by Democrat-backed passage in 2010 of Dodd-Frank’s 2,300 pages put at a disadvantage smaller financial institutions like community banks, which rarely have the resources to cope with heavier burdens. The impact was telling: Community banks’ assets were halved from 1994 to 2015, according to a Harvard study. While the Great Recession was rough on small banks, with 6 percent of them disappearing, the study found that ‘since the second quarter of 2010 — around the time of the passage of the Dodd-Frank Act — their share of U.S. commercial banking assets has declined at a rate almost double that between the second quarters of 2006 and 2010.’ Swinging their regulatory club at Wall Street, Congress missed, and clobbered Main Street.”[Emphasis mine] (Ref. 4)

     As is all too-often common, liberals once again went overboard with their socialistic mindset to overregulate, to micromanage and to control. They rushed to generate hundreds of pages of rules and mandates and to establish massive government bureaucracies that would, with time, become self-perpetuating in and of themselves to the detriment of those they were supposed to benefit. Their goal of bigger and more authoritarian government once more led to unintended negative consequences, as have most socialistic schemes, once again proving the adage that big government is not the answer. Like Obamacare, Dodd-Frank has proven to be a liberal overreach of big government authority and control.


  1. The Macroeconomic Impact of Dodd Frank—and of Its Repeal, Norbert Michel and Salim Furth, The Heritage Foundation, 13 April 2017.
  2. No ‘Wonderful Life’ nowadays for small banks, Cornelius Chapman, Boston Herald, Page 21, 6 December 2013.
  3. Dodd-Frank battle may not help America's favorite banks, Larry Light, CBS News, 7 June 2017.
  4. Dumping Dodd-Frank, The Washington Times, 5 June 2017.


  22 June 2017 {Article 296; Whatever_56}    
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