After last week’s presidential debate, conservative commentators praised Mitt Romney for explaining that one of the worst aspects of Dodd-Frank is the damage it inflicts upon smaller banks.
Since the debate, Professor Greve has written an outstanding three-part series in the Online Library of Law and Liberty, laying out the constitutional case against the CFPB. I hope you will read the whole series for yourself, but here is an excerpt in which Greve elaborates on the CFPB’s near-unrestrained power:
And this agency is empowered to “declare” “unfair, deceptive or abusive acts or practices.” “Unfair” and “deceptive” are terms that (at least to lawyers and compliance officers) have a tolerably clear meaning, distilled in decades of regulation and litigation. “Abusive,” in contrast, is totally new. It must mean “acts or practices” that are fair (more precisely, not unfair) and non-deceptive. So there’s a set of perfectly suitable products, advertised with perfect candor and truthfulness, that are nonetheless “abusive.” And the contours and content of that set will be “declared” by the Director, in whatever form and forum (regulation, enforcement, guidance, or maybe front porch soliloquy) he may choose.
I also recommend Senator Vitter’s Wall Street Journal op-ed, which explains why it is preposterous to assume that a law designed to regulate the financial industry will benefit consumers and ordinary financial institutions that exist outside of Wall Street:
A major drawback of Dodd-Frank is that it has swelled the cost of over-regulation on all institutions and thus consumers. The legislation has led to over 400 new rules—an avalanche of regulations that has increased economic uncertainty and the cost of doing business while accomplishing little to increase safety in the financial system.
The burden weighs most heavily on smaller banks, putting them at a competitive disadvantage and helping the megabanks grow even bigger and more dominant since the financial crisis. During the crisis, the nine largest banks and securities firms consolidated into what are now the six largest bank holding companies. As a result of these mergers, total bank assets at three of the four largest megabanks grew by an average of more than $500 billion.
The assets of the six biggest U.S. banks currently equal 62% of U.S. gross domestic product, up from 18% in 1995. Together, these six banks are now twice as large as the rest of the top 50 U.S. banks combined. This isn’t making the financial system safer either.
In other words, while Dodd-Frank has purported to end “Too Big to Fail” and prevent a future crisis, it is doing the opposite.