Just repeal all of Dodd Frnak

The real complaint about Dodd Frank isn’t the manner in which it did a bit of regulating the financial sector in the US. Sure, some parts of that regulation were silly, bad even, but then they’re the bits that will be revisited and fixed. The real problem is that it became a grab bag, a fill your boots operation for anyone with a stupid piece of law they wanted enacted. The stupid bits won’t be revisited – which is why it would be far better if the whole thing were repealed in its entirety.

As an example we are getting reform of those bits of financial regulation which could and should be improved:

The House voted Tuesday to pass the biggest rollback of financial regulations since the global financial crisis. The margin was 258-159, with 33 Democrats supporting the legislation.

The bill will now go to President Donald Trump’s desk. He said Wednesday morning that he would sign the bill soon. The Senate already passed the legislation with bipartisan support.

There will be some benefits to this:

Rick Nichols, president of a small credit union in Jefferson City, Mo., put it this way: “The interesting part of ‘Too Big To Fail’ in 2008 is that because of the onerous regulations that have come out of 08-09 they’ve created more too big to fails. Because of the regulatory environment, they’ve actually created more systemic risk. Because it is now so expensive per piece [of financial offering] because of the hoops and ladders we’ve created, it’s forcing institutions to merge to still offer those products.”

As ever, more regulatory hoops means consolidation of the industry, only larger organisations can carry the overhead of being able to deal with the regulations. This though is rather more important:

In the proposed changes, to be called “systemically important” and subject to more regulations, banks would need assets of $250 billion, rather than the current $50 billion. That significantly reduces the number considered too big to fail. Only nine U.S.-chartered commercial bank holding companies would meet the definition, according to data from the Federal Reserve. Such large regional banks as State Street, SunTrust, the U.S. division of HSBC, Fifth Third, and KeyBank, and Citizens Bank would be under the limit.

Too big to fail is a real problem, one that requires an answer. The solution is to tax those banks that enjoy such protections the value of the protection. That is, something like Osborne’s bank levy should be applied – as Obama actually did suggest. But too big to fail really should still only apply to those banks which are too big to fail. The Fed would cheerfully allow State Street, or SunTrust, to fail. Oh, there’d be an orderly wind down, depositors would be protected, but they’d just wave and laugh as the shareholders lost their lot. Which is as it should be of course. Our TBTF problem is that some banks are just too large to do that to. Great, whatever we do should therefore only apply to those banks which are indeed TBTF.

However, that doesn’t get rid of what’s truly bad about Dodd Frank. For example, Section 1502. This is about conflict minerals. What the hell’s this doing in a financial sector regulation bill? Well, quite. It’s there because Dodd Frank is in fact a compendium of everything that people had lying around. It’s truly ghastly in fact. As I’ve railed about Section 1502 often enough. Vast expense for counter-productive results.

So, a limited and muted cheer for reform of Dodd Frank and a Yah, Boo, Sucks for the failure to repeal it all. For that’s the only way we’ll ever get rid of all the garbage that was piled into it, by simply revoking the lot.

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1 COMMENT

  1. Your analysis is correct, but it’s worse than that. The Consumer Financial Protection Bureau still has the power to spend money without an Act of Congress (it assesses fees on the institutions it is “protecting,” paid to the Treasury, which is required by law to remit directly back to the CFPB). And it remains an Executive Branch agency unaccountable to the Chief Executive. (Mercifully, Mnuchin is functioning as acting chairman, but the question of whether ex-chairman Cordray had the power to install his proxy before he quit is still in the courts.)

    The problem is not that the nine are Too Big To Fail; it is that the federal government will not let them fail. In 2008, the Democratic Party’s insistence on loaning money in the inner-city despite inability to pay came home to roost, and the entire Republican Party (from clueless racketeer John McCain to NH’s brilliant John E. Sununu) peddled the myth that financial failure would be “contagious,” that each ripple would be greater than the splash, resulting in the giant TARP slush fund, which was not spent as specified, for which no one paid any price; and oblivion for the Republicans until the current crop of con artists emerged. The next time Goldman Sachs is in trouble, the rules will get changed.

    The Dems opposed structural changes to CFPB, as well as softer conditions for the biggest banks; the Republicans (wait for this) surrendered to get their votes, as the Republicans are eternally divided, the Senate is paralyzed by its own rules (except when it doesn’t want to be: Gorsuch). The Republicans can’t repeal a bad law, only give selected firms absolution if they lobby strenuously (and contribute).

    Mitch McConnell’s plan is to tread water and back-slap through 2018, when we re-elect them and see whether they even let the penalty for not having a crappy insurance policy actually lapse to $0 — or whether they double-cross us again.