It Makes A Good Talking Point, But It Isn’t True

On Thursday, Investor’s Business Daily posted an editorial about the impact of the Dodd-Frank regulations on the banking industry. Both Hillary Clinton and Bernie Sanders have hailed Dodd-Frank as the solution to the problems that caused the 2008 financial meltdown. Unfortunately, if Dodd-Frank is the solution, they have misunderstood the problem.

The article reports:

In their recent debate on MSNBC, both Hillary Clinton and Bernie Sanders bashed Wall Street and the banks, blaming them for the financial meltdown and subsequent record-slow economic recovery.

Sanders, a socialist, called Wall Street and the banks “criminal” and “corrupt” and implied that he would jail CEOs at big financial companies for their “illegal activity.”

And Clinton issued a literal threat: “You know, we now have power under the Dodd-Frank legislation to break up the banks.” Doubling down, she said that she now wants the same power over investment banks, insurance companies, mortgage companies and others.

Blaming banks and Wall Street might have populist appeal, but it’s false. In his definitive analysis of the financial crisis, “Hidden In Plain Sight,” Peter Wallison, who served on the Financial Crisis Inquiry Commission, showed that it was the systematic weakening of mortgage lending standards under the U.S. government’s own housing policies that led to the meltdown — and to the phony call by Democrats to go after Wall Street and the banks.

The editorial includes a chart showing the number of regulations that were imposed on banks as a result of Dodd-Frank:


The article reports the result of Dodd-Frank:

Banking consultant Eric Grover of Intrepid Ventures recently wrote in The American Banker, “Under Dodd-Frank, new bank formation has essentially ceased.” The data are shocking: From 2011 to 2014, just one new commercial bank and no new savings banks were chartered. In the 15 years before Dodd-Frank, an average of 140 new commercial banks and 15 new savings banks were chartered each year. While small banks are going out of business at a record rate due to regulatory costs, big banks with over $50 billion in assets are now “too big to fail.”

The American economy does better when the government stays out of our business–not when the government over-regulates things.