Dodd-Frank Regulations “Put Lid on Our Economic Potential”
February 24, 2016 -
WASHINGTON – The Subcommittee on Capital Markets and Government Sponsored Enterprises held a hearing today to investigate a decrease in liquidity and a lack of resiliency in the fixed income markets as a direct result of new Dodd-Frank Act and Basel requirements.
“Instead of a coordinated, well-thought out legislative and regulatory approach in the wake of the financial crisis, what we’ve had instead is a series of ad-hoc initiatives all ostensibly designed to make the financial system safer, but which in reality will only serve to put a lid on our economic potential while sowing the seeds of the next financial crisis,” said Subcommittee Chairman Scott Garrett (R-NJ).
“This misguided approach began with the Dodd-Frank Act, which was rushed through Congress on a partisan vote with little regard for what its provisions would mean for Main Street America,” Garrett added.
Key Takeaways from the Hearing:
- Dodd-Frank has made us less prosperous and impaired economic growth.
- Washington regulators continuously fail to assess the cumulative impact that new regulations have on the markets and the broader economy.
- True, sustainable economic growth that increases paychecks and creates opportunity for all comes from Main Street, not Washington. Excessive Washington regulations make it harder for small businesses on Main Street to grow and create jobs.
As part of today’s hearing, the Subcommittee discussed three legislative proposals to correct misguided regulations and instead promote capital formation and expand investment opportunities:
- H.R. 4166, introduced by Rep. Andy Barr (R-KY) and Rep. David Scott (D-GA), would amend the Securities Exchange Act of 1934 to amend risk retention requirements for managers that organize “qualified collateralized loan obligations.”
- H.R. 4096, introduced by Rep. Michael Capuano (D-MA) and Rep. Steve Stivers (R-OH), makes a modest amendment to the Volcker Rule, and corrects an unintended consequence from implementation of the Volcker Rule by federal agencies.
- A discussion draft offered by Rep. French Hill (R-AR) would amend the Securities and Exchange Act of 1934 to modify the risk retention requirements for certain commercial real estate loans.
Topline Quotes from Witnesses:
“Recent financial regulations such as Dodd-Frank, Basel III, Money Market Fund regulations and many more, both alone and in concert with each other, create a climate of uncertainty of enormous proportions. In addition, they triggered regulatory and compliance cost burdens that radiate through the economy. Ultimately, this has led to a culture of indecision that is choking the U.S. economy and paralyzing American businesses and financial companies that had nothing at all to do with the financial crisis….” -Anthony J. Carfang, Partner, Treasury Strategies, Inc.
“The emphasis of Dodd-Frank and Basel III on reducing credit risk has also caused a squeeze on the creation of credit, which has harmed economic growth. Credit growth is the life-blood of economic growth, especially in periods where population growth, wage growth, and productivity growth are all either sub-par or non-existent...The lack of credit growth currently in the market is one of the main reasons why our recovery has been slower than hoped and our wage growth and employment continue to lag.” -Jeffrey Plunkett, Natixis Global Asset Management
“In a nutshell, the risk retention rules are already impacting – and reducing – the CLO market. This is particularly unfortunate because CLOs have a strong, proven track record, they currently provide almost one-half trillion dollars to US companies – and their curtailment would come exactly when the regulators are beginning to be concerned about credit availability.” -Meredith Coffey, Executive Vice President, Loan Syndications and Trading Association
“The sheer number of new rules and their breadth is resulting in a significant retrenchment by banks and illiquidity in the markets. In many cases, the regulatory burden outweighs the prudential benefit…The market is becoming fragile – even before half of the planned regulations come into place. Illiquidity and volatility are becoming the norm.”-Stephen Renna, President and Chief Executive Officer, Commercial Real Estate Finance Council