from Jeb Hensarling at The Wall Street Journal, After Five Years, Dodd-Frank Is a Failure [1]:
Dodd-Frank was based on the premise that the financial crisis was the result of deregulation. Yet George Mason University’s Mercatus Center [2] reports that regulatory restrictions on financial services grew every year between 1999-2008. It wasn’t deregulation that caused the crisis, it was dumb regulation.
Before Dodd-Frank, 75% of banks offered free checking. Two years after it passed, only 39% did so—a trend various scholars have attributed [3] to Dodd-Frank’s “Durbin amendment,” which imposed price controls on the fee paid by retailers when consumers use a debit card. Bank fees have also increased due to Dodd-Frank, leading to a rise [4] of the unbanked and underbanked among low- and moderate-income Americans.
Has Dodd-Frank nevertheless made the financial system more secure? Many of the threats to financial stability identified in the latest report [5] of Dodd-Frank’s Financial Stability Oversight Council are primarily the result of the law itself, along with other government policies.
Dodd-Frank’s Volcker rule banning proprietary trading by banks, and other postcrisis regulatory mandates, has drastically reduced liquidity for making markets in fixed-income assets. The corporate bond market is one of the primary channels for capital formation in the economy. Reduced liquidity in this market amplifies volatility. Because of Dodd-Frank, financial markets will have less capacity to deal with shocks and are more likely to seize up in a panic. Many economists believe this could be the source of the next financial crisis [6].
HKO
read the whole article. This regulation was based on political narratives and expediency, rather than the thoughtful and non partisan analysis such a significant piece of regulation requires. It seems that our next crisis is the result of the bad solutions legislated for the last crisis.