On Tuesday, the House approved the biggest rollback of the banking regulations instituted in response to the 2008 financial crisis. The repeal, which passed 258-159, with 33 Democrats lending their support, will now go to President Donald Trump’s desk and he tweeted he will sign the bill soon.
After years of railing against the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Republicans made good on their years-long pledges to slash the red tape that hurts businesses. Some GOP lawmakers contended that the rollback didn’t go far enough, but it appeased Democrats who wanted to remove financial rules that hurt small- and mid-sized lenders.
So, what changes?
The measure increases the threshold for banks considered too big to fail from $50 billion to $250 billion. These firms sitting under the limit would no longer need to conduct stress tests or submit living wills. The bill also curbs mortgage loan data reporting requirements that critics say makes it more expensive for community banks to operate, but opponents argue it will renew racial discrimination.
Banks with less than $10 billion in assets can participate in proprietary trading and will be protected from legal liabilities when writing mortgages, including for highly indebted borrowers.
Washington Responds to Reforms
Republicans are cheering the reforms.
(R-WI) said the move is a boon for small banks, regional institutions, and neighborhood lenders:
“This is a bill for the small banks that are the financial anchors of our communities. It addresses some of Dodd Frank’s biggest burdens to ease the regulatory costs on these small banks — costs which are ultimately transferred on to consumers.”
Representative Jeb Hensarling (R-TX), chairman of the House Financial Services Committee, stated that the struggle to attain the American Dream finally changes today.
Despite the support from many Democrats, both in the House and Senate, more prolific leftist detractors are sounding the alarm.
House Minority Leader Nancy Pelosi (D-CA) lamented that it “would open the doors to banks once again discriminating in how they lend to home buyers.” Representative Maxine Waters (D-CA) called the legislation a handout to Wall Street and the big banks “posting record profits.”
Senate Democrats also warned that the rollback could open taxpayers to more liabilities if banks fail.
The Problems with Dodd-Frank
Former Representative Barney Frank (D-MA) and former Senator Chris Dodd (D-CT) offered the nation the illusion of economic stability, industry regulation, and consumer confidence. It didn’t achieve any of this. Opponents to the idea of scrapping Dodd-Frank purport that any such initiative will only help Wall Street and protect the largest banks in the U.S. today. However, like so many other bills that are marketed as a way to help the little guy, the 2010 legislation has been a gift to the power players.
When Dodd-Frank was signed into law by former President Barack Obama, it essentially eliminated the small-town Main Street bank a la the Bailey Building and Loan Association in It’s a Wonderful Life.
Under the legislation, neighborhood financial institutions are required to fill out enormous boxes of paperwork to offer a basic loan and be held liable until the loan is repaid. This makes it difficult for any small, independent bank without a full-time legal staff to compete against the big guns.
The Government Accountability Office (GAO), which reviews Dodd-Frank every year, confirmed this in a 2016 study. The independent government watchdog agency discovered that Dodd-Frank reduced choices, limited services, lowered the quality of service, and increased regulatory compliance costs. In the end, banks extended fewer loans to customers.
In the years following its passage, the number of commercial banks declined, the fees of basic banking services ballooned, and many benefits were curtailed.
As the Mises Institute’s Mark Thornton told the Heartland Institute in February 2016:
“They do not want an honest, stable system. What they are working towards is an oligopoly or oligarchy of banking, where you have a small number of very large government-privileged banks, where competition from small banks is effectively suppressed by bank regulations.”
The GOP’s efforts do not go far enough, but this is still a big win for the Trump administration, the Republican Party, and the typical American consumer. No longer will middle and rural America be confined to choosing crony institutions that established permanent housing in the swamp. Or, to allude to It’s a Wonderful Life again, your average American can bank with George Bailey and not Henry Potter.
Do you support the rollback of Dodd-Frank? Let us know in the comments section!