from Jeb Hensarling at The Wall Street Journal, After Five Years, Dodd-Frank Is a Failure:
Dodd-Frank was based on the premise that the financial crisis was the result of deregulation. Yet George Mason University’s Mercatus Center 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 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 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 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.
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.