Phil Gramm | Dodd-Frank’s Nasty Double Whammy

<p>WASHINGTON - JULY 21: U.S. President Barack Obama (L) greets Rep. Barney Frank (R) (D-MA) and Sen. Chris Dodd (C) (D-CT) after signing the Dodd-Frank Wall Street Reform and Consumer Protection Act at the Ronald Reagan Building July 21, 2010 in Washington, DC. The bill is the strongest financial reform legislation since the Great Depression and also creates a consumer protection bureau that oversees banks on mortgage lending and credit card practices. (Photo by Win McNamee/Getty Images)</p>

Phil Gramm, Wall Street Journal:

Five years after the passage of the Dodd-Frank financial law, the causes and effects of the failed economic recovery are apparent throughout the banking system. The Federal Reserve’s monetary easing has inflated bank reserves, but lending has barely increased. Today banks maintain an extraordinary $29 of reserves for every dollar they are required to hold. In the first quarter of 2015 banks actually deposited more money in the Fed ($65.1 billion) than they lent ($52.5 billion).

According to the Federal Deposit Insurance Corp., 1,341 commercial banks have disappeared since 2010. Remarkably, only two new banks have been chartered. By comparison, in the quarter century before the financial crisis, roughly 2,500 new banks were chartered. Even during the Great Depression of the 1930s, an average of 19 new banks a year were chartered.

A Mercatus Center survey found that while community banks have hired 50% more compliance officers to deal with Dodd-Frank, overall industry employment has increased only 5% and remains below precrisis levels. Industrial, consumer and mortgage finance continue to flee the banking system, as the American Bankers Association reported this week that the law’s regulatory burden has led almost half of banks to reduce offerings of financial products and services.

New financial-services technology, such as online and mobile payment systems, has continued to blossom, but almost exclusively outside the banking system. The massive resources of, and talent in, banks have been sidetracked, rather than being employed to make loans and boost the economy.

Worst of all, Dodd-Frank has empowered regulators to set rules on their own, rather than implement requirements set by Congress. This has undermined a vital condition necessary to put money and America back to work—legal and regulatory certainty.

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