Revise banking laws for opportunity for all, bailouts for none


When President Barack Obama signed the Dodd-Frank Act six years ago, supporters promised it would “lift the economy,” “end too big to fail,” “increase financial stability” and “protect consumers.”

None of those promises have been kept.

Nearly eight years after the financial crisis, Americans are stuck in the slowest and weakest economic recovery of their lifetimes. The percentage of Americans working or actively seeking work is at its lowest level since the malaise of the late 1970s. Incomes are falling, wages are stagnant and Americans living in poverty have increased by nearly 7 million during this administration.

Even the Federal Reserve, which has insisted that its accommodative monetary policy would help produce growth, admitted recently that the economy was not healthy enough to absorb higher interest rates, signaling slow economic growth far into the future.

The Fed should recognize that the law, with its 400 job-crushing rules and regulations, is the real cause of economic weakness.

Dodd-Frank has made it more difficult for small businesses and start-ups to obtain capital to grow, invest and hire. Small business lending from banks is at its lowest in 20 years and more than 75 percent of corporate treasurers say federal regulation is stifling access to financial services. As a result, new business formation is at a 35-year low.

Even existing firms are finding it difficult to obtain financing. During the first quarter of this year, nearly 40 percent of small-business owners had to transfer personal assets to keep their businesses running. And the cost of the smallest commercial and industrial loans has risen 10 percent from the pre-crisis average.

Dodd-Frank apologists argue this is the price of financial stability. But little in the legislation will help avoid another crisis, and many provisions are making future crises more likely.

For instance, the law does nothing to wind down Fannie Mae or Freddie Mac, the government-sponsored behemoths that helped fuel the subprime mortgage bubble and led to the largest taxpayer bailout in American history.

Likewise, rather than ending “too big to fail,” Dodd-Frank codifies it by empowering government bureaucrats to designate large banks, insurance companies and other firms “systemically important,” putting them first in line for a taxpayer bailout if they get in trouble. That creates an unlevel playing field for banks too small to absorb the cost of complying with the law’s red-tape avalanche. As a result, there are nearly 1,500 fewer banks than when the law was enacted.

Dodd-Frank also hurts consumers with the loss of free checking, fewer and more expensive credit cards, limited access to mortgages and surges in bank fees. It has empowered unelected bureaucrats in new unaccountable government agencies, like the Consumer Financial Protection Bureau, to harass small businesses, politicize the allocation of credit and engage in the most sweeping data collection of Americans’ financial records in history.

There is a better way.

The Financial Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs Act would give strongly capitalized banks an “off-ramp” from Dodd-Frank. It allows banks to escape excessive regulations as long as they maintain a balance sheet with higher equity capital to guard against loan losses and economic stress.

None of the banks that failed during the financial crisis were properly capitalized. But banks can’t afford to be properly capitalized when they are forced to assume the high costs of regulatory compliance. Financial stability would be much better served by liberating banks from burdensome regulations and instead encouraging them to hold a greater amount of capital.

An example of the relief offered to banks in the Financial CHOICE Act is my bill, the Portfolio Lending and Mortgage Access Act, which would broaden the definition of a “qualified mortgage” to include all mortgages held on a lender’s balance sheet. This reform would have the dual benefit of promoting responsible lending practices to prevent future crises and bailouts, while encouraging economic growth through expanded home ownership.

The Financial CHOICE Act also replaces bailouts with a new bankruptcy procedure for large, complex financial institutions. And it would rein in the excesses of the Consumer Financial Protection Bureau by making it a bipartisan commission subject to the congressional appropriations process. This proposal is part of legislation I introduced that would give Congress real oversight of this agency for the first time.

The central irony of Dodd-Frank is that it not only failed to address the actual causes of the financial crisis, it made future crises more likely. Fortunately, we don’t have to choose between financial stability and economic growth. We can ensure economic opportunity for all and bailouts for none.

Rep. Andy Barr represents Kentucky’s 6th District in the U.S. House.