By J. Preston Carter, J.D., LL.M.
At the fifth anniversary of the Financial Crisis Inquiry Commission report, an American Action Forum article examines “the good, the bad, and the ugly” of Congressional response to the crisis and concludes that “[P]erhaps the best” response was greater capital reserves for financial companies. The article—FCIC Report: What have we learned since?—was written by Douglas Holtz-Eakin, AAF President and former Commissioner on the FCIC, which was formed to investigate and issue a report on the causes of the crisis, and Meghan Milloy, AAF Director of Financial Services Policy.
The good. Although capital mandates result in reduced lending activity and increased client fees, the authors write, “most can agree” that the benefits from “at least some increase” in bank’s capital cushions outweigh those costs. Other “good” responses are increased transparency of credit rating agencies’ decisions and “bailouts”—those that kept Fannie Mae and Freddie Mac from collapse, and those that came through the Troubled Assets Relief Program.
The bad. The Dodd-Frank Act’s “push out” rule, affecting non-credit derivatives, which, the authors say, had little to do with the financial crisis, has complicated bank customers’ one stop shopping for their financial needs, and has made banks more complex. Other “bad response” are: the Volcker Rule, premised on the false assumption that the crisis was caused by proprietary trading and set to cost banks $4.3 billion; and new Securities and Exchange disclosure rules, mandated by Dodd-Frank, even though, the authors contend, a lack of “certain disclosure requirements certainly didn’t cause the crisis.”
The ugly. Finally, the authors list as “ugly” responses: (1) the Orderly Liquidation Authority and “Too Big To Fail” rules that, although intended to treat banks like “any other company,” have done “just the opposite,” with banks growing bigger; (2) the Financial Stability Oversight Council, which has “slapped” systemically important financial institution designations on companies that “pose no discernible systemic risk to the U.S. economy”; and (3) the “ugliest of all the uglies”—the absence of action on a core part of the actual causes of the crisis: Fannie Mae and Freddie Mac.
The American Action Forum describes itself as a 21st century center-right policy institute providing actionable research and analysis to solve America’s most pressing policy challenges.
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