All 2,300 pages of the Dodd-Frank financial law and its 400 new regulations, many of which are still being written two years after the law’s passage, were jammed down the throat of the American banking system by legislators, most of whom have little to no real-world experience working in the banking industry.
A review of the biographies of the key backers of the bill—Sen. Chris Dodd (D-CN), Barney Frank (D-MA), and Sen. Dick Durbin (D-IL)—gives no indication they ever worked for a bank or had any financial service industry experience. When you have people trying to write laws to rein in businesses with which they have no direct, hands-on experience and which they don’t understand, you are bound to get a bad result and all the unintended consequences that go with it.
As one result of this overreach, Dodd-Frank is likely to drive many community banks out of business or force them to sell to larger competitors.
1,000 Banks May Disappear
The American Bankers Association (ABA) estimates Dodd-Frank will cause 1,000 banks to close their doors by 2020. It appears little or no regard was given to the additional costs that banks will be burdened with as a result of this legislation.
The SEC estimates banks will have to spend $3 billion to $4 billion to implement Dodd-Frank requirements and will have to spend anywhere from $206 million to $609 million in annual compliance costs.
Those estimates are optimistic. The U.S. Chamber of Commerce estimates it is more likely to cost $16 billion to implement Dodd-Frank.
Millions Could Lose Jobs
The collateral damage from Dodd-Frank in terms of lost jobs and jobs that will never be created is also going to be an enormous weight around neck of the economy. A September 13, 2011 Wall Street Journal opinion piece (“The Dodd-Frank Layoffs”) declared the layoff of 30,000 employees announced last year by Bank of America was a direct result of Dodd-Frank.
The ABA estimates Dodd-Frank threatens to cost the country about 2.9 million jobs over the next three years.
However, as is always the case with additional government regulation, this is going to be a boon for regulators, lawyers, and bureaucrats. The Government Accountability Office estimates Dodd-Frank required 2,850 new federal employees through fiscal 2012 to oversee implementation of the legislation, including the ongoing efforts to write thousands of pages of regulations. Taxpayers will be billed about $1.3 billion to pay for it.
Any law that will force thousands of businesses to close, potentially cost tens of billions of dollars to implement, destroy millions of jobs, and end financial innovation, cannot be good for the economy.
Kevin Truitt ([email protected]) is a former commercial banker who writes from Chicago.