Republicans from the House Financial Services Committee issued a report on Monday, July 21st, criticizing the Dodd-Frank financial reform law, arguing that it over-regulates large financial firms and has only reinforced the belief some of the global financial institutions are “too big to fail.”
Writers for the Wall Street Journal were given a copy of the report to review before it was published.
Report contends Dodd-Frank enshrines “too big to fail”
The almost 100-page research report criticizes Dodd-Frank on a number of grounds. The report claims the process for regulators to call certain nonbank financial companies “systemically important” basically tells investors the government thinks those firms are too big to fail.
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“These designations lead market participants to believe that they will be protected from losses if that firm fails,” the report alleges.
Financial Stability Oversight Council
The nonbank systemically important designation process of Dodd-Frank is carried out by the Financial Stability Oversight Council. Being designated means a firm is subject to supervision by the Federal Reserve as well as a set of tougher regulatory standards.
“The council’s designations authority addresses a key weakness brought to light by the financial crisis: the existing regulatory structure allowed some large, complex nonbank firms to pose risks to financial stability that were not subject to adequate supervision,” U.S. Treasury Secretary Jacob Lew elaborated in recent congressional testimony. Before the 2008 crisis, a number of firms, including American International Group Inc., had very little regulatory oversight.
Democrats and other defenders of Dodd-Frank point to the fact that many financial firms, including insurance companies, asset managers and others, have tried hard to avoid being designated as systemically important as proof the status clearly is not a competitive advantage.
Statement from Democrats
The ranking Democrat on the House financial panel, Maxine Waters of California, released a written statement saying Dodd-Frank “has provided much-needed oversight to Wall Street, given regulators the tools to end the era of ‘too big to fail’ entities and taxpayer bailouts and put a new federal agency on the front lines of protecting consumers from bad actors in the financial system.”
She continued to criticize Republicans for waging “an unrelenting campaign to destroy Dodd-Frank from the moment it was signed into law.”