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FSC Majority | Week in Review
Posted by Staff on July 10, 2015
Committee Explores Dodd-Frank's Impact on Financial Stability

On Thursday, the Financial Services Committee held the first of a series of planned hearings on the impacts the Dodd-Frank Act has had in the five years since it was signed into law.

Thursday’s hearing focused on whether Dodd-Frank has made the financial system more or less stable, and it comes on the heels of a report from the Financial Stability Oversight Council (FSOC) that many of the systemic risks identified by FSOC are the direct result of government policies, including Dodd-Frank.  Dodd-Frank’s Volcker Rule, for example, has made capital markets less liquid and more fragile, undermining rather than enhancing financial stability.  The lack of liquidity means financial markets have less capacity to deal with shocks and will be more likely to seize up in a panic.  Rather than making markets more stable, the new regulations have made them more brittle.

Backing that up, a recent Federal Reserve survey of credit officers shows that “over four-fifths of respondents characterized current liquidity and market functioning…as having deteriorated over the past five years,” according to a Reuters report.

Chairman Jeb Hensarling (R-TX) in his opening statement emphasized the increased risk to stability that Dodd-Frank has created. "Dodd-Frank has codified 'Too Big to Fail' into law and provided a taxpayer-funded bailout system in Title I and Title II of the Act. This simply leads to even greater moral hazard and to greater instability. According to the Richmond Federal Reserve, the explicit federal guarantees of financial sector liabilities have increased to a whopping 60 percent post-Dodd-Frank. When private investors, depositors, and counterparties expect a bailout, their incentives to monitor risk clearly wane. Regulatory micromanagement is no substitute for market discipline. By this measure, Dodd-Frank has clearly made our financial system riskier."

Rep. Robert Hurt spoke on Dodd-Frank's unintended consequences that have harmed Main Street, our economy’s engine for job creation and growth. "This month marks the fifth anniversary of the Dodd-Frank Act, which was sold to the American people as a solution to the financial crisis of 2008. A recent Harvard study articulates how Dodd-Frank has actually given Wall Street an advantage over Main Street - the exact opposite of what its proponents said it would do. The consequences of this misguided law have been increased burdens on our Main Street banks and their customers through excessive regulations, contributing to a stagnant economy and unnecessarily high unemployment rates."

Mark Calabria, Director of Financial Regulation Studies at the Cato Institute, testified at Thursday’s hearing that “moral hazard has been increased by Dodd-Frank’s expansion of the financial safety net and increased concentration of risk into fewer entities, while the primary 18 causes of the crisis were largely left untouched.”

Dodd-Frank's SIFI Designation Process Comes Under Subcommittee’s Review

The Financial Institutions and Consumer Credit Subcommittee held a hearing on Wednesday to examine the designation process of “systemically important financial institutions” (SIFIs) and the impact it has on financial institutions. Committee members heard testimony about the process for determining whether bank holding companies (BHCs) are systemically important and the consequences these designations carry.

Many commentators – including members of Congress and banking regulators – have criticized the arbitrary manner in which the Dodd-Frank Act designates bank holding companies as systemically important.

Rep. Scott Tipton (R-CO) said, "I never thought I would be quoting Barney Frank but effectively he's come out and said we didn't intend for it to be able to go this far in terms of a regulatory regime.  And I think that it really speaks to an out of control regulatory process where a broad-based piece of legislation is being put forward and we're leaving the regulators to fill in the blanks."

Rep. Ed Royce (R-CA) voiced his concern about the "diminishing returns of increased regulation."

"When a regional bank is spending $200 million on compliance projects and hiring 500 additional non-loan officer staff, it really makes you question who's benefiting. Certainly not the customer looking for a loan, looking to build a home, start a business, or pay for a child's education," he said.

“This year, our Committee has held several hearings examining the regulatory burdens facing community financial institutions.  The issue before us today is no different. Money spent to comply with unnecessary regulations can be better allocated to loans for small businesses and consumers," said Subcommittee Chairman Randy Neugebauer (R-TX).


Subcommittee Conducts Oversight of HUD's Public and Indian Housing Programs

The Housing and Insurance Subcommittee held a hearing today to examine the Department of Housing and Urban Development's (HUD) Public and Indian Housing operation and programs.

"We’ve spent a lot of time discussing the need for reform in our nation’s housing programs," said Subcommittee Chairman Blaine Luetkemeyer (R-MO) in his opening statement. "As I’ve said in the past, the status quo isn’t good enough. The reality is that the funding situation isn’t going to get better. Despite even the best of attempts, asking for more federal dollars isn’t the solution. It’s time to roll up our sleeves and work together to build a stronger Office of Public and Indian Housing and a better HUD."

MEMBER SPOTLIGHT

Rep. Lynn Jenkins | Congresswoman Jenkins Marks 5 Year Anniversary of Dodd-Frank

This week we are pleased to feature a Member not on the Committee who is joining us in speaking out about the harm Dodd-Frank is having on Main Street: Rep. Lynn Jenkins (R-KS), Vice Chair of the House Republican Conference.

Weekend Must Reads


Financial Times | Free Lunch: Still too big to fail

That suggests perceptions of too-big-to-fail are alive and well. If so, and if those perceptions are right, it is bad for the rest of us who are not too big to fail but small enough to pay.

Wall Street Journal | MetLife Calls the Regulators’ Bluff

Now that we know the weakness of the FSOC’s data, Congress should consider whether the SIFI designation process makes sense. It should not leave the answer to an unaccountable organization of financial regulators.

    On the Horizon 

July 14, 2015 10:00 a.m.
Oversight and Investigations Subcommittee Hearing

"Fed Oversight: Lack of Transparency and Accountability"

July 15, 2015 10:00 a.m.
Full Committee Hearing

"Monetary Policy and the State of the Economy"

  In the News

American Banker | Dodd-Frank Battle Lines Intensify on Verge of Five-Year Mark

Bloomberg | Midsize Bank Challenges $50 Billion SIFI Threshold

Inquisitr | Reps. Luetkemeyer, Neugebauer Stand For Consumers By Reigning In And Reforming CFPB

DS News | Lawmakers Debate ‘Too Big to Fail’ and Criteria for ‘Systemically Important’ Tag

U.S. News | Five Years After Dodd-Frank, CFPB Still Under Fire

Credit Union Times | Dodd-Frank Debated in Congress

Time.com | Have the Dodd-Frank Financial Reforms Been a Success?

MarketWatch | Five Years After Dodd-Frank, Here Come the Reviews

DSNews | House Committee Schedules Hearings Marking Anniversary of Dodd-Frank

American Banker | 'Take Your Lawmaker to Work' Puts New Twist on Lobbying for Reg Relief

Washington Times | Low unemployment rate obscures decline in Americans seeking work

Bloomberg | Brainard Says Rules Probably Have a Role in Liquidity Volatility

MarketWatch | Lew Unwilling to Declare Too-Big-To-Fail is Over
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