By John M. Pachkowski, J.D.
The fifth anniversary of the Dodd-Frank Act’s enactment has brought an avalanche of reports, commentary, analyses, speeches, and opinion pieces highlighting the costs and benefits of the law. The authorship of these reports determined whether: “Dodd-Frank—GOOD” or “Dodd-Frank—BAD”.
The American Action Forum (AAF) released an analysis detailing the law’s impact on employment, the housing market, and regulatory burden. Overall, the analysis found that the Dodd-Frank Act has fundamentally altered capital markets and added layers of complexity for consumers and financial institutions.
The analysis was conducted by Ben Gitis, Director of Labor Market Policy, Andy Winkler, Director of Housing Finance Policy, and Sam Batkins, Director of Regulatory Policy, at the AAF. The American Action Forum “is a 21st Century center-right policy institute providing actionable research and analysis to solve America’s most pressing policy challenges.”
Costs and burdens. Specifically, Gitis, Winkler, and Batkins found that five years after Dodd-Frank’s enactment its regulatory mandates have cost $24 billion and accounted for 61 million in paperwork burden hours. The analysis also noted that “[o]nly 60.3 percent of Dodd-Frank’s 398 regulations have been finalized, with another 21.5 yet to be proposed, and 18.2 percent in proposed form.” Moreover, the top five costliest pending regulations would add $7.8 billion in regulatory costs and 1.7 million in paperwork hours. These top five pending regulations deal with capital requirements for swap entities, home mortgage disclosure, standards for clearing agencies, pay ratio disclosure, and conduct standards for swap dealers.
Job growth. The analysis also discussed the impact on job growth. Gitis, Winkler, and Batkins pointed out that, while many of the rules enacted under Dodd-Frank are intended to limit risk among the largest financial companies, small firms seem to be paying the price with stagnant job growth. On the other hand, they noted there has been a “substantial increase in financial regulatory jobs in the federal government.”
Regulatory surge. Research by Patrick A. McLaughlin, a Senior Research Fellow at the Mercatus Center at George Mason University and Oliver Sherouse, program associate for the regulatory studies program at the Mercatus Center, quantified the regulatory surge of Dodd-Frank. They noted that Dodd-Frank “is associated with more than five times as many new restrictions as any other law passed since January 2009, for a total of nearly 28,000 new restrictions.”
They added, “The extraordinary output of regulation set in motion by Dodd-Frank should, five years after its enactment, give us pause. Such a large and sudden addition of regulation of the financial sector has doubtless increased the complexity of financial regulation, and it is remarkable that such vast changes were accomplished in a relatively short timeframe, for better or worse.” McLaughlin and Sherouse concluded, “Whether this increased government involvement in the financial sector will prevent future crises or exacerbate them remains to be seen.”
People being tamed. In remarks before the American Enterprise Institute, House Financial Services Committee Chairman Jeb Hensarlng (R-Texas), said, “The ‘animal spirits’ of free enterprise, entrepreneurial risk-taking and dream-chasing that have identified us as a people are being tamed.” He added the promised benefits that Dodd-Frank would “lift our economy, end “Too Big to Fail” and “promote financial stability” have made our society “now less stable, less prosperous, and less free.” In his closing, Hensarling said, “let’s commit ourselves to nothing less than the replacement of Dodd-Frank. Before the next economic downturn, Congress should replace Dodd-Frank. With this modest first step, together we can begin to win back America’s promise.”
More remains. Aaron Klein, Director of the Bipartisan Policy Center’s Financial Regulatory Reform Initiative, said, “Five years in, Dodd-Frank has revamped financial regulation. The new system, while still largely untested, has made important improvements to guard against the causes of the last crisis.” He added, However, Dodd-Frank also left major areas unaddressed and, like any new law, requires improvements. It will be up to our political and regulatory systems to ensure that we are in the best position to prevent future crises in different forms and to protect consumers, while nurturing a robust financial system that encourages economic growth.”
A report released by the Democratic staff on the House Financial Services Committee concluded that while Dodd-Frank has been successful in the face of partisan attack, more must be done to ensure all Americans can benefit from the economic recovery. “Five years and nearly 13 million jobs later, the Dodd-Frank Wall Street Reform Act has put our nation on a path to economic recovery,” said Rep. Maxine Waters (D-Calif.), the Committee’s Ranking Member. She added, “The financial crisis represented the worst financial disaster in a generation. And in the face of relentless Republican attempts to roll back these critical reforms, Democrats remain committed to fighting to protect American consumers from the worst actors in our financial system.”
“5 numbers to know”. Think Progress, a progressive, non-partisan, editorially independent advocacy group listed “five numbers to celebrate the overhaul’s birthday”:
- $10.3 billion recovered by the Consumer Financial Protection Bureau for illegal or illegitimate practices by financial companies;
- 83 separate financial rules mandated by Dodd-Frank that haven’t been written yet;
- 139 separate times Congress has tries to amend or repeal Wall Street reform in its first five years;
- $3.25 billion spent to influence the government since Dodd-Frank was passed; and
- The five biggest banks control 44 percent of all U.S. banking assets—more than before Dodd-Frank was enacted.
Grave mistake. Speaking at an event sponsored by the Better Markets group to mark the fifth anniversary of the signing of the Dodd-Frank Act, Treasury Secretary Jacob Lew asserted that “it would be a grave mistake to think that banks can self-regulate, that forces that produce excessive risk-taking are a thing of the past, and that risks taken on Wall Street will not harm Main Street.”
Following up on his remarks at the Better Markets event, Lew issued a separate July 21, 2015, statement from his office to underscore this same theme of “maintaining vigilance” to continue the work of Dodd-Frank Act reforms. “As memories of the crisis fade, our vigilance must not,” Lew commented.
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