Dodd-Frank regulations make it more difficult and therefore more expensive for banks to get money to businesses looking to grow, and that will cost the U.S. hundreds of billions of dollars in lost economic growth over the next decade, new research shows.
The law was intended to protect taxpayers from another financial crisis, but the massive regulatory burden it placed on banks translates into $895 billion of reduced economic growth over the next ten years, a new analysis of the impact by the American Action Forum found. That’s $3,346 per working-age person.
“While supporters of the Dodd-Frank Act claim that the law only hits Wall Street, the reality is that the law impacts businesses and financial institutions of all stripes,” AAF President Douglas Holtz-Eakin said in a statement announcing the findings Wednesday.
Banks pay about $15.8 billion a year to comply with the law, AAF has estimated, and they have responded to the law by lending a smaller share of their capital. (RELATED: Whoops! Regulators Left Out $2 Billion In Dodd-Frank Costs)
Holtz-Eakin calculated an effective tax rate using those two factors and used it to adjust the Congressional Budget Office’s economic growth projections from 2016 to 2025 to arrive at the $895 billion reduction in growth.
The mass of rules and regulations has hit small community banks, which provide 50 percent of America’s small business loans and 70 percent of agriculture loans, especially hard. Many of the banks don’t have the money to keep up with the cost of the regulatory burden, so owners are selling or merging with other banks.
So the law is actually driving the consolidation of many small banks into a few large banks; arguably the same type of consolidation Dodd-Frank’s biggest advocates found most questionable.
The GOP attempts to correct unintended consequences of the law and roll back some of its regulations have been met with strong resistance from Democrats in Congress determined to fight any change to the bill. (RELATED: Warren Accused Of Clinging To Dodd-Frank At Expense Of Middle Class)
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