On July 21, 2010, Congress passed the Dodd-Frank financial regulation bill. Today, that bill turns five. It is not a happy anniversary.
As CEI’s John Berlau points out in a new paper, Dodd-Frank has actually reduced competition in the financial sector. By codifying too-big-to-fail and adding in price controls and other regulatory hoops—27,669 total regulatory restrictions and counting—Dodd-Frank insulates incumbent banks from pesky upstart competitors. In fact, in the last five years, precisely one new bank has opened for business. This stagnation is not healthy for innovation or for competition—or for capital-hungry entrepreneurs throughout the economy.
A few other Dodd-Frank facts worth pondering:
- The original bill text is 848 pages long. The edition of Herman Melville’s Moby Dick on my bookshelf is 602 pages long.
- Dodd-Frank requires regulatory agencies to issue 398 regulations. Five years later, many of them have yet to be issued. Hopefully they stay that way.
- Since each of those regulations contain multiple regulatory restrictions (some of the rules are hundreds of pages long and are extremely detailed), the actual number of regulatory restrictions Dodd-Frank enacts could eventually top 40,000, or even 50,000. Nobody knows yet.
- Its price controls on debit card interchange fees have raised the cost of banking for small businesses and the poor (See Iain Murray’s new paper).
- Dodd-Frank does not address the root causes of the 2008 financial crisis—banks took on too much risk, especially in the housing sector. Instead, by codifying government bailouts for major financial institutions, Dodd-Frank reduces incentives for financial institutions to keep their risk at manageable levels. Whatever its stated intentions, Dodd-Frank potentially sets the stage for another financial crisis and more bailouts.
For more, see John’s extensive Dodd-Frank research.