Written by Econintersect
With the recent proposed legislation to remove a number of banking regulations, the question is being asked: Is this the end of the Dodd-Frank Act, the 2010 legislation passed with the objective of reducing the chances of another financial crisis arising from over-leveraged banks like the one in 2008?
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Michael S. Barr wrote in Fortune over a year ago: Trump’s Dismantling of Dodd-Frank Would Be 2008 All Over Again. He suggested that the banks would surge with a new “sugar high for a few years” and then “crash the economy” again.
The Raleigh News & Observer editorial board wrote (07 May 2017):
But the GOP bill now going to the full House would start to break up Dodd-Frank, ultimately simply returning the country to the days of little regulation, which is exactly what a high-roller president with multiple bankruptcies in his own business career wanted. President Trump at one point argued for deregulation because he said friends of his were having trouble getting loans.
This legislation is a straight-out bow to big banks and lenders. It hands the gamblers in New York the dice again, and the pot is the country’s financial stability. If the big-money crowd on Wall Street includes the geniuses Trump seems to think it does, then how did they manage to steer the country into near-collapse in 2008?
The big culprit was a lack of oversight, and Republicans know it even if they now don’t want to admit as they charge ahead to please the deep-pocket contributors who helped them win back the Congress. The American people know this, and must make their feelings known to the senators, Republican and Democratic, who now stand as the last line of defense against potentially disastrous changes in financial regulation.
The specific legislation that may be approved by the senate this week will ease regulations on banks under $10 billion in assets, which means all the TBTF (too big to fail) banks will still be under the oversight mandated by Dodd-Frank. Behind this legislation lies the view that Dodd-Frank is an onerous hassle for community and regional banks, neither of which were major players in the financial crisis. Some Democrats, including Frank, have long been willing to amend these portions of the original bill.
But the bill has been amended to allow banks with between $50 billion and $250 billion in assets to operate with less regulatory scrutiny, leaving Dodd Frank regulation only for the 12 largest banks, introducing some significant risks, according to Vox:
In loosening stabilizing regulations on banks with up to $250 billion in assets, the legislation dismisses the lessons of past crises. We know that banks often make the same mistakes at the same time – that’s the story of not just the recent mortgage crisis but the savings and loan crisis of the 1980s. And three or four troubled banks in the $200 billion range add up, together, to a Lehman Brothers-level failure.
To ease regulations on these banks because they are not, individually, as big as the banks that caused the 2007 crisis is to misunderstand the nature of the crisis itself.
Prof. William K. Black, a leading expert on white collar crime and bank fraud, was interviewed on this topic by The Real News Network. Prof. Black goes farther than the reports quoted above in discussing how even the largest banks will see looser regulation under the new legislation:
