Why are Republicans in such a rush to kill Dodd-Frank?
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Like a chorus in a Euripides Greek tragedy, Republican members of the House’s Financial Services Committee have been bemoaning that the Dodd–Frank Wall Street Reform Act is killing jobs. It is the height of irony that the legislators who are opining on how to reform the financial sector with a proposed bill called the Financial Choice Act are not producing numbers to prove their claims. Fortunately, unlike in ancient Greek times, in 2017 we have access to labor data that disprove Republican claims.

Last week, the Department of Labor announced that the national unemployment rate had decreased to 4.4 percent, the lowest figure in exactly 10 years, when the 2007 recession started. Additionally, the number of Americans filing for unemployment benefits has fallen to 238,000, near a 44-year low; this indicates that there is further tightening of the labor market. This was the 114th straight week that claims remained below 300,000, a threshold associated with a good labor market. 

Not only do national unemployment numbers show that the labor market has vastly improved since the 2007 recession, financial sector unemployment data also do not support Republican claims that Dodd-Frank is killing jobs. While the national civilian unemployment rate is 4.4 percent, Bureau of Labor statistics show that unemployment in the financial sector is 2.3 percent — 48 percent lower than the average unemployment rate. Also, jobs in the financial sector are growing. After leisure and hospitality and healthcare, the financial sector saw the highest rises in April in new jobs.


Even during October 2009-May 2010, when U.S. unemployment hit highs of 10 percent, the worst that the financial sector rate hit was 7.7 percent, in March 2010. Since its peak level, unemployment in the financial sector has decreased by 70 percent, while national unemployment has decreased by about 55 percent. This means that the financial sector has recovered much more than the aggregate national level. Since September 2012, unemployment in the financial sector has been under 5 percent consistently. 


Financial sector unemployment data means that at the very least we should explore very carefully what dismantling Dodd-Frank could do to the economy and unemployment levels. Since the recession was a decade ago, it is very easy for those who did not lose their jobs or have their homes foreclosed on to develop amnesia about how painful its effects were. Financial crises always cause job losses, not just in finance but across the whole economy. Unsurprisingly, the people who suffer the most are those without a college degree. Politicians should really question why these people with fewer job opportunities should suffer because of crises caused by more highly educated people in finance, who have more ease in finding another job when they cause markets to implode.

According to Robert Selvaggio, economist and managing partner at Rutter and Associates, "there’s scant empirical evidence tying job losses or reduced economic growth directly to Dodd-Frank. And I believe that strengthening the Commodity Futures Trading Commission and working to stop banks' abuses of derivative end-users has been a very positive development. As has promoting Dodd-Frank’s stress testing and comprehensive capital analysis reviews among FDIC-insured institutions that didn’t even know what a stress test was.” 

If Republican legislators want to talk about an area of finance that is being hard hit, they should focus on community banks. According to Selvaggio, “the community banks who had nothing to do with the subprime mortgages and credit derivatives written structured products, are suffering the most from compliance costs that hamper their businesses if not shut them down. Mistargeted and expensive regulation ultimately leads to reduced growth and reduced employment.” 

The Republicans in the House’s Financial Services Committee have not quantitatively proven why there is such urgency to get rid of Dodd-Frank. At a hearing to discuss the Financial Choice Act, the proposed bill to replace Dodd-Frank, a number of Republicans state that there was a huge rush to sign-off on Dodd-Frank before Financial Inquiry Commission had released a study about the causes of the 2007-2008 financial crisis. If they truly believe this, are they not guilty of the same rush to sign off on the Financial Choice Act without the data to back up their claims that this new act will help grow the American economy? Banks small and big have spent millions in auditors, compliance and new technology to adapt to Dodd-Frank —how much will they have to spend now to adapt to a new law?

Republicans often cite that numerous community banks have closed down since the year that Dodd-Frank was signed. Yet, it is difficult to quantify how much was due to new regulations and how much was due to the effect of the crisis on the banks' customers. Even when community banks fail, it does not mean that all employees are automatically unemployed. Federal Deposit Insurance Corporation data show that the vast majority of these failed institutions get bought out by others. It is unfortunate that so many community banks have closed. Fortunately, FDIC data show that the number closing has been decreasing.

I am pleased that there seems to be bipartisan support to explore how to revitalize this very important segment of the economy. Yet, helping community banks should not give license to politicians to argue for throwing out all of Dodd-Frank with an exaggeration that Dodd-Frank is a job killer. Instead of blaming Dodd-Frank without quantitative substantiation, maybe legislators should analyze what eliminating ObamaCare might do to current job creation in the fastest growing sector in the U.S.: healthcare. This sector has added jobs three times more than the rest of the other sectors in the economy.

In order to make good decisions, we should compel politicians to use data to quantify their proposed solutions. Since we are not in a crisis, this is a good time to ask which parts of Dodd-Frank really need to be improved and which ones need to be jettisoned. Scaremongering without numbers will not reduce the divide between Democrats and Republicans. But scaremongering will prevent Congress from coming up with the solutions necessary to expand the American economy.

I implore legislators eager to eliminate Dodd-Frank and possibly wreak havoc on the American economy to remember that improving the standard of living of all its residents is their real job.


Mayra Rodríguez Valladares is managing principal of MRV Associates, and previously was at the Federal Reserve Bank of New York and JP Morgan. Follow her on Twitter @MRVAssociates

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