Senate Considers Dodd-Frank Reforms, Rollbacks

Published June 24, 2015

A bill to ease financial and investment regulations passed in 2010 in response to the 2008 banking crisis is under consideration in the U.S. Senate.

The Financial Regulatory Improvement Act of 2015 (FRIA), proposed by Senator Richard Shelby (R-AL), was approved in May by the Senate Banking Committee. If signed into law, FRIA will ease financial regulations in the Dodd-Frank Wall Street Reform and Consumer Protection Act, commonly referred to as “Dodd-Frank,” and require the Federal Reserve and other government financial regulators to operate with greater transparency.

‘More of the Same
Heritage Foundation Research Fellow Norbert Michel says Dodd-Frank is an example of tired government-centric policies.

“[Dodd-Frank] basically gave us more of the same type of regulation and top-down design, so there’s no reason to expect a different outcome in the future,” Michel said.

“All regulations end up costing consumers something,”  Michel said. “The only question is to what extent. Dodd-Frank has burdened more firms with larger compliance costs, and there’s no doubt some of that will be passed on to consumers.”

Michel says allowing the market to pick winners and losers would be more effective at achieving Dodd-Frank’s stated goals than authorizing government to decide which companies succeed.

“The better approach would be to allow these firms to face market discipline and operate without so much top-down regulation,” Michel said.

Consumer Services Diminished
J.W. Verret, a senior economics scholar at the Mercatus Center at George Mason University, says Dodd-Frank has hurt consumers.

“Dodd-Frank has resulted in a significant decrease in free checking accounts for consumers, [and it] has increased the cost of borrowing for nearly a third of creditworthy African-American and Hispanic consumers, according to a report from the Federal Reserve,” said Verret.

Verret says Dodd-Frank has also stifled innovation.

“Dodd-Frank has hindered the financing pipeline for biotech companies working to develop life saving drugs,” said Verret. “They have seen their hopes to go public dashed by bureaucratic compliance costs. What exactly are consumers now protected from?

“Too many people seem to have forgotten that all those Fannie and Freddie mortgage-backed securities were actually backed up by the government,” Verret said. “There’s no doubt that’s one reason so many people wanted to buy them and invest in them. This situation hasn’t changed at all except that an even higher percentage of mortgages are backed by the government.”

Creating Moral Hazard
Verret says the financial industry needs less government babysitting, not more.

“The federal safety net for the financial sector needs to be dramatically curtailed,” Verret said. “The Richmond Federal Reserve estimates $26 trillion, or 60 percent of debt issued by the financial sector, is backed up by the federal government.”

“The guaranty completely distorts capital markets and eviscerates the discipline that creditors would otherwise exact on financial firms that take unnecessary risk,” Verret said.

Karen Beseth ([email protected]) writes from Jamesville, New York.

Internet Info:

Norbert Michel, “Dodd-Frank’s Expansion of Fed Power: A Historical Perspective,” Cato Institute: