One of the great myths of the 2008 Crash (which was created by the Federal Reserve holding interest rates down for too long, along with boneheaded social policy from Washington – the Community Reinvestment Act) is that banking was somehow under regulated.
That is a joke. As someone who worked in retail banking pre-2008 I can tell you that banks were deeply regulated. There were massive compliance departments filled with squadrons of lawyers in banks prior to 2008 and Dodd-Frank. (2 of perhaps our worst ever legislators, at least since the turn off then century. Get this, Senator Dodd left the Senate to become a lobbyist for Hollywood, so what does that tell you?) Regulation abounded.
Then 2008 happened. The Dems had majorities so they went to town layering even more regulations on top of banks. They’d always wanted to do it and so now, as the public was blindsided by economic calamity – calamity brought on by government planners by the way – the Dems went whole hog.
But interestingly these regs worked to the benefit of the big banks in many respects. Dodd-Frank decimated small and regional banks, banks just holding on, while the big banks, the connected banks, got bailed out and then absorbed the cost of the new regs as a cost of doing business. And as a way of knocking out smaller competitors.
I’ll bet you won’t hear this on CNN or MSNBC though. I wonder why?
(From The Hill)
So why are progressive groups and their Senate counterparts trying to label the bill as “gutting” Dodd-Frank? Sen. Elizabeth Warren (D-Mass.) for example, said that Republicans and Democrats are “siding with their big bank donors instead of working families.” She’s wrong. Whatever the many merits of dismantling Dodd-Frank, this bill doesn’t do that.
Hyperbole aside, the Crapo bill is a moderate, common-sense reform with strong bipartisan support. The bill is almost exclusively focused on exempting community banks, those Main Street institutions with less than $10 billion in assets, from some of the worst Dodd-Frank rules. For better or worse, the legislation provides no deregulatory measure whatsoever for Wall Street — surely more a “tweaking” of Dodd-Frank than a “gutting.”
Even the legislation’s most significant reforms are rather modest. Take Dodd-Frank’s policy of designating regional banks as “too big to fail.” Regional banks are larger than community banks but much smaller than their cousins on Wall Street. Nevertheless, regional banks are regulated in the same manner as some of the largest, most complex institutions. Currently, any bank with over $50 billion in assets is automatically considered a “Systemically Important Financial Institution” (SIFI). This places Zions Bank in Utah, with $65 billion in assets, under the same regulatory apparatus as J.P. Morgan, which has $2.5 trillion in assets. The hypothetical failure of these two banks would pose wildly different risks to the economy, and yet they are regulated as if they were the same.
Regulating Main Street like Wall Street simply does not make sense.
It should also be noted that Dems like to pretend like they weren’t all cuddly with the banks and their lobbyists during the writing of Dodd-Frank. Remember Goldman Sachs was Obama’s second biggest contributor in 2008.