This week marks the five-year anniversary of the Dodd-Frank Act, the most substantial rewrite of the country’s financial laws since the New Deal. With the enactment of Dodd-Frank, Americans were promised it would protect taxpayers from future bailouts, create a safer financial system, and raise our economy. Yet, five years later, the evidence shows those are broken promises.
After a long five years, the impact of the 2,300 page legislation and 400 new regulations that stem from it is clear; our economy is not in better shape, with more small business “deaths” than “births” and over 16.7 million Americans unemployed or underemployed. Nor is the economy much more stable.
Thanks in large part to the crushing regulatory burden unleashed by Dodd-Frank’s regulations, we have seen major consolidation in community banking, and unnecessarily strenuous requirements for midsize and regional banks that pose no real threat to the U.S. financial system but are being treated as if they do. The result is fewer financial institutions serving the needs of our nation’s small businesses and families. Overall, thanks to Dodd-Frank, the U.S. capital markets are less competitive than international financial systems, making it expensive for American companies to raise capital and grow jobs.
Dodd-Frank is a failure purely in that it has not created a safer U.S. financial system. The Act was responsible for creation of the Financial Stability Oversight Council, or FSOC, a body charged with identifying risks and emerging threats to financial stability. FSOC has used its authorities to designate regional banks, which pose little to no risk to the financial system, three insurance companies, and one finance company as Systemically Important Financial Institutions, or SIFIs. Despite countless questions over the past five years, financial regulators have yet to articulate why or how these institutions pose a threat to the U.S. economy. Meanwhile, in its 2015 annual report, FSOC failed to identify the growing national debt as an emerging threat, despite the fact that the nonpartisan Congressional Budget Office last month described the national debt as a significant risk to the U.S. economy.
This law has not required financial regulators to focus on real risk to the system; rather, Dodd-Frank granted the agencies it created unfettered power to impose sweeping regulatory changes and effectively replacing what the Obama Administration called a “shadow banking system” made up of millions of individual market interactions with a “shadow regulatory system,” a collection of bureaucratic agencies subject to almost none of the checks and balances of government. The unelected bureaucracies of FSOC and the Consumer Financial Protection Bureau (CFPB), both born of Dodd-Frank, act in direct opposition to the most fundamental American ideals of opportunity and free enterprise.
Dodd-Frank was also billed as the saving grace for the American consumer, but what we’ve seen is a tightening of credit and loss of consumer choice. Through the CFPB, an agency intended to set the gold standard for consumer rights, Americans have seen a decline in access to credit and mortgage services.
The intent of Dodd-Frank was to reduce risk, yet it has done more to reduce growth and opportunity for American consumers and businesses.
We can and should build a safer financial system. I believe we must continue to offer new solutions to Dodd-Frank so American consumers can have restored faith in their financial system and businesses can focus on fueling our economic revival.
Luetkemeyer represents Missouri’s 3rd Congressional District and has served in the House since 2009. He sits on the Small Business Committee and is chairman of the Financial Services Committee’s Subcommittee on Housing and Insurance.