Marco Rubio at the podium. Source: Shutterstock
The Dodd-Frank Act was mentioned several times at the Republican debate by the presidential hopefuls all with the same undertone: it sucks.
Finally we get a discussion of the economy coming from the party that claims to be on the “right is right” side of economic policy. This is why we buy kegs and host watch parties. According to all the polls — literally, all the polls — it is the entreé in our meal of issues we give a shit about.
“In Dodd-Frank, You Have Actually Codified Too Big to Fail” – Marco Rubio
The Dodd-Frank Act is a law that passed in 2010 as a reaction to the Financial Crisis of 2008. In this law, there are close to 850 pages of legislation accompanied by approximately 19,000 pages of regulations intended to whip these financial institutions into shape. To boot, the law created several new regulatory agencies. The Consumer Financial Protection Bureau (CFPB), for example, protects consumers from harmful financial products and services by having the ability to go after institutions that rip the consumer off.
Ironically, Dodd-Frank has achieved the opposite of its main mission that is to keep the big banks from becoming too big to fail by sucking the life out of smaller banks through to the high cost of regulation.
Jeb Bush, although flip-floppy on the government’s role of regulating banks, claimed this law is hurting the banks that actually give back to the communities — the small banks.
Rubio, who has mentioned the Dodd-Frank Act in all three debates, agreed with Bush on that point. In addition, he added:
In Dodd-Frank, you have actually codified too big to fail. We have actually created a category of systemically important institutions, and these banks go around bragging about it. You know what they say to people with a wink and a nod? “We are so big, we are so important that if we get in trouble, the government has to bail us out.”
Ted Cruz brought the Dodd-Frank talk into PG-13 levels when he emphasized how the rich do great with big government. “They get in bed with big government,” he illustrates. “The big banks get bigger and bigger and bigger under Dodd-Frank and community banks are going out of business.”
To show us how he really felt, Cruz rode in on his dark horse by answering the initial question, of bailing out the big banks in another financial crisis, with a defiant, “No.”
On Both Hands
According to the Republican candidates, Dodd-Frank is a total mess. In some regards, they are a little exaggerated, but for the most part, they have a point.
Small banks have been dwindling since the ‘90s, but it’s true that this law has not helped them come back. Close to 350 banks have closed up shop since 2010. Although the failure rate for community banks has dropped in more recent years, the little guys sure aren’t popping up.
This is a serious problem because community banks usually offer low fees and flexibility in lending. They can also tailor their services to their members much more than the large banks. This results in high customer satisfaction scores, according to the American Consumer Satisfaction index on banking.
On the other hand, big banks have made up for their weakness in flexibility and customer service by increasing technology, embracing peer-to-peer lending and having ATMs everywhere.
Our Take
The Dodd-Frank Act has created a large hurdle for small banks as they have had to adhere to regulations that are tailor-made for the large banks. It has pushed the smaller banks to merge with others. The CFPB has affected product offerings to their members, making small banks less flexible and reducing their personal touch.
All in all, A+ for effort GOP, but the likelihood of actually repealing Dodd-Frank is slim to none.
