Thanks to tax reform and the Trump administration’ deregulatory agenda, Americans are starting to see changes in their financial fortunes for the first time in years. Wages that have been stagnant for the better part of a decade are showing signs of edging higher while consumer confidence, a typically strong predictor of economic health, is the highest it has been since the turn of the century.
The overhaul of the nation’s tax system, combined with the Trump administration’s deregulatory agenda, has catalyzed this growth. But Congress must do more to ensure policy keeps up with the demands of a dynamic economy.
With now eight years passing between the start of the financial crisis and today, Americans would be justified in questioning what vision policymakers have for the future of financial regulation. Economic confidence may be on the rise, but faith in government institutions remains low. Lawmakers in Washington should start with acknowledging the mistakes of the past and move to correct some of the onerous barriers government has erected that stand in the way of future prosperity for all Americans.
Members of Congress will have an opportunity to do that, possibly as early as next week. The House of Representatives is expected to take up S. 2155, the Economic Growth, Regulatory Relief, and Consumer Protection Act sometime on Tuesday.
The Great Recession inspired many reckless government responses, perpetrating an even worse cascade of unintended consequences, and nowhere is this more true than in the financial sector. In many cases, the government’s response to the 2008 financial crisis has left Americans far worse off.
Rick Nichols, president of a small credit union in Jefferson City, Mo., put it this way: “The interesting part of ‘Too Big To Fail’ in 2008 is that because of the onerous regulations that have come out of 08-09 they’ve created more too big to fails. Because of the regulatory environment, they’ve actually created more systemic risk. Because it is now so expensive per piece [of financial offering] because of the hoops and ladders we’ve created, it’s forcing institutions to merge to still offer those products.”
The Economic Growth, Regulatory Relief, and Consumer Protection Act, the product of years of negotiation between Senate Banking Chairman Mike Crapo, R-Idaho, and a handful of his colleagues on both sides of the aisle, was a rare moment of bipartisan agreement when it passed the Senate with 67 votes earlier this spring. It has met resistance in the House of Representatives, where Republicans are anxious to unwind even more of the financial regulations that were generated from the Dodd-Frank Act passed in 2010 after the financial crisis.
But the bill represents a significant step forward in undoing some of harm caused by Dodd-Frank. It is the first serious recognition by policymakers in Washington that Dodd-Frank took the wrong approach by offering a one-size-fits-all approach to regulating an industry where specialization and diversity in institutions is essential to success.
The bill relieves small institutions from having to withstand the same capital requirements that Wall Street banks are beholden to. It also extends relief to those smaller banks and credit unions from the Volcker Rule, as long as they stay under certain asset requirements of $10 billion or less.
The bill does nominally raise the threshold for what is known as a systemically important financial institution, thereby easing some of the regulatory oversight the Fed deploys over large banks, but in a way that Federal Reserve Chairman Mike Powell told House Financial Services Committee members was useful for effective oversight.
This is good news for small lenders and the communities who are served by them, but even better news for Americans nationwide, whose lives have been impacted by the federal government’s reckless regulation of financial systems.
Dodd-Frank views community banks and credit unions the same as large Wall Street banks, though consumers and business owners know the opposite is true. As in most cases of regulation by fiat from Washington, the most powerful interests can sustain these overarching rules, while small players in the industry are left grappling with the consequences.
Nichols, the president of the credit union in Missouri, cited the creation of a whole separate compliance department in his firm just to keep his company abreast of regulations coming out of Washington. “We used to view following the laws that we knew well as a role in everyone’s department,” he said. “Since [the passage of Dodd-Frank] there’s no way that everybody here can drink from the fire hose. We have started a compliance department and it seems every 9 months we are adding someone. I run an organization of 75 people and I have four new employees in that department.”
This clearly illustrates the costs these regulations have on consumers and community institutions. Nichols continued: “In my mind, the positions I want to put on staff are positions that help members. When I add the overhead of four people that aren’t helping members, it’s just more overhead that I have to spread across costs for my members.”
The conditions that have dominated the average American economic experience for the better part of the last decade are finally starting to improve; our financial institutions must be able to evolve along with the people they serve. Washington must get to work to remove the barriers that have confined Americans’ financial choices. By chipping away at the heavy-handed Dodd-Frank approach to regulating the financial sector, policymakers can start to modernize our policy to meet the needs of Americans.
Combined with an economic expansion like the one that is currently underway, there is no telling what the possibilities are for Americans across the country.