Three years after the Dodd-Frank Wall Street Reform and Consumer Protection Act became law, experts are still debating its impact.
President Barack Obama celebrated its enactment during his weekly address.“Three years ago this weekend, we put into place tough new rules of the road for the financial sector so that irresponsible behavior on the part of a few could never again cause a crisis that harms millions of middle-class families,” he said.
“We’ve locked in new safeguards to protect against another crisis and end bailouts for good, and even though more work remains, our financial system is more fair and much more sound than it was,” Obama declared.
Some experts, however, believe the president is overselling the law passed in response to the 2008 financial crisis. They worry that the increased regulation limits consumer choice while protecting business interests, and that the law’s new rules and institutions embrace the “too-big-to-fail” mindset while threatening individual privacy.
John Berlau, a scholar at the free-market Competitive Enterprise Institute, argued to The Daily Caller News Foundation that big businesses hijacked Dodd-Frank for their own gain.
“Walmart, Walgreens and Home Depot got price controls on what they pay to banks for debit cards, which is really one of the most costly provisions for ordinary consumers,” he said. “That’s when banks got rid of free checking unless you have a big balance, because if they couldn’t get retailers fees they had to charge more to consumers.”
“At the time, the businesses that were more popular than the banks could use [Dodd-Frank] to their advantage,” he continued. “It was a free-for-all; different lobbyists with different agendas, if they could label it financial reform, got their agenda thrown in there, whether or not it was in the public interest.”
Berlau also lamented a lack of consumer choice in financial products and its unfortunate repercussions.
“There are limits on competition,” he said. “Some community banks have stopped making mortgages,” which forced consumers into larger banks that operate under Dodd-Frank’s auspices but which often offer less-competitive pricing.
Many academics are additionally concerned that Dodd-Frank allows investors and institutions to take irresponsible risks – like the ones that precipitated the 2008 financial crisis – because they know the government will protect them in the end.
Hester Peirce, a scholar at the Mercatus Institute, told TheDCNF how Dodd-Frank’s placement of all financial derivatives into government-managed clearing houses could lead to poor investment decisions and possibly unbalance the financial markets.
Because derivatives are such a complicated and long-term investment, Peirce argues that investors should always pay close attention to who they’re dealing with. “What Dodd-Frank does is say, ‘Don’t worry about [your counterparty], because you’re going to be in this relationship now with a clearing house for a year, and the clearing house is safe, so don’t worry about it,” she said.
“What we’ve done then is we’ve removed a whole layer of market scrutiny on counterparties,” Peirce concluded.
Other experts fear that certain Dodd-Frank institutions perpetuate a “too-big-to-fail” mentality, making future bailouts of financial institutions and other big businesses all-but-inevitable.
Writing in National Review, Iain Murray describes how the Financial Stability Oversight Council designated certain large firms as“systemically important financial institutions.”