There is a bill moving through the Senate that would raise the assets threshold for the approximately two dozen banks that are subject to “enhanced prudential standards” from $50 billion to $250 billion. These standards are meant to prevent the collapse of “systemically important financial institutions”—in other words, banks whose sudden collapse might threaten the financial system as a whole. Banks with assets below $250 billion are very unlikely to cause such a threat. It’s the banks with assets over $1 trillion, such as JPMorgan Chase and Bank of America, which could trigger financial Armageddon.
It would also relieve banks with under $10 billion in assets (which make up about 98 percent of financial institutions, but which have only 15 percent of financial assets) of the need to adhere to the Consumer Financial Protection Bureau’s nitpicky rules that restrict loan design and set very rigid underwriting standards.
The idea behind these parameters is the prevention of another housing bubble. But as the Wall Street Journal pointed out, in the first quarter of 2011, only about 3 percent of single-family housing loans from these banks were seriously delinquent, while fully 16 percent at the biggest banks were.
These rules are extremely expensive and time-consuming to follow. According to Investor’s Business Daily, Dodd-Frank costs the banking system a staggering 83 million man-hours and $39 billion in compliance costs over its lifetime. And this burden falls most heavily on the small, community banks, which lack the economies of scale available to the big banks.
This has big economic consequences. It is the small banks who fund most small and start-up companies, and it is those companies that provide the most economic growth and increased employment. Many economists think that the Dodd-Frank burden placed on banks and CFPB’s lending restrictions are the prime causes for the slow pace of the post-recession recovery. It is not a coincidence that the number of banks in the United States is down by 20 percent since Dodd-Frank was enacted. Small banks simply had to merge in order to stay profitable.
Senator Elizabeth Warren et al. are, of course, up in arms. “On the 10th anniversary of an enormous financial crash,” she said, “Congress should not be passing laws to roll back regulations on Wall Street banks.” Senator Warren seems to think that all banks, at least metonymically, are located on Wall Street and part of the vast financial conspiracy to oppress the long-suffering masses.
But the effect of her favored policies is to put banking assets into ever larger and fewer financial entities that are ever more remote from ordinary people. In other words, Senator Warren’s policies inevitably favor Wall Street over Main Street.
It’s funny how leftist policy always results in concentrating power in the hands of the elite, taking it away from everyone else.
Choose your plan and pay nothing for six Weeks!
For a very limited time, we are extending a six-week free trial on both our subscription plans. Put your intellectual life in order while you can. This offer is also valid for existing subscribers wishing to purchase a gift subscription. Click here for more details.