Dodd-Frank Harming Global Competitiveness of U.S. Financial Institutions and Markets
March 5, 2014 -
The cumulative weight of financial regulation – much of it stemming from the 2,300-page Dodd-Frank Act – will harm the global competitiveness of U.S. financial institutions and financial markets, witnesses told the House Financial Services Oversight and Investigations Subcommittee at a hearing today.
“We live in an extremely competitive and dynamic global marketplace, and the United States faces a period of rising regulation. In the course of implementing the Dodd-Frank and Basel III rules, U.S. regulators have imposed and continue to impose regulations that will undoubtedly constrain banking and financial services,” said Rep. Patrick McHenry (R-NC), the subcommittee’s chairman.
Despite its breadth and far-reaching consequences, Dodd-Frank fails to address the misguided government policies that lead to the 2008 financial crisis or even hold accountable the Washington regulators who failed to recognize and mitigate the risks in the run-up to the crisis. In a classic case of “failing upward,” Dodd-Frank rewards Washington regulators, who so spectacularly failed to do their jobs, with even more power.
“Because U.S. financial institutions are in the process of building the compliance structures necessary to comply with hundreds of new rules, the aggregate cost of all these rules cannot be quantified. Because regulators have failed to undertake cost-benefit analyses for these new rules, estimating their cost is difficult. Nonetheless, these regulatory burdens will impose costs in the form of anemic economic growth and weak job creation,” McHenry added.
Witnesses at today’s hearing highlighted the potential harm U.S. financial institutions and markets face in today’s global economy because of these burdensome regulations.
“The time has come to acknowledge that we are at a crossroads – globally and domestically. One path leads to a system where American banks and financial services firms, buckling under the weight and excessive and contradictory regulations, become less diversified, less competitive globally, more inward looking, and in my view, potentially more unstable. This path leads to a sub-optimal outcome- one in which financial firms are less focused on market drivers and meeting the needs of customers and more on pleasing local regulatory authorities,” said Louise Bennetts, Associate Director of Financial Regulation Studies at the Cato Institute.
“Another path begins with the recognition that we already may have gone a step too far. The time has come to ask ourselves ‘what was the purpose of this all?’ If the purpose is to make the United States banking sector less crisis-prone, safer, and move competitive, we need a comprehensive and realistic assessment of whether all these regulations -- given their significant costs -- are achieving that outcome,” Bennetts added.