"A lot of people who complain about this couldn't organize a two-car funeral," former Sen. Chris Dodd, D-Conn., remarked recently to the Wall Street Journal.
Dodd was disparaging the critics, right and left, of the law for which he is now most famous — the sweeping financial reform bill that celebrates its fifth anniversary today. But those hurt most by Dodd-Frank, which passed in the wake of the 2008 financial crisis, are the community banks whose demise it has dramatically hastened.
The Dodd-Frank bill contained 360,000 words, about twice as many as the New Testament, but the regulations written to implement it are far more voluminous. Some are still being drafted, but already Dodd-Frank has created more regulatory requirements and prohibitions (nearly 28,000) than all other Obama-era laws combined, according to new analysis by Patrick McLaughlin and Oliver Sherouse of the Mercatus Center at George Mason University.
That's a lot of two-car funerals. And all this government-mandated busywork has helped the industry's largest players, the too-big-to-fail banks that caused many of the problems, run roughshod over their smaller competitors.
"More intense regulatory and technology requirements have raised the barriers to entry higher than at any other time in modern history," Goldman Sachs CEO Lloyd Blankfein said just this February. "This is an expensive business to be in, if you don't have the market share in scale. Consider the numerous business exits that have been announced by our peers as they reassessed their competitive positioning and relative returns."
A February 2015 working paperby Marshall Lux and Robert Greene at Harvard's Kennedy School found that "while community banks weathered the crisis with greater resilience than many mid-size counterparts, since the passage of the Dodd-Frank Act the pace at which community banks have lost market share is nearly double what it was during the crisis."
In other words, community banks were more prudent and thus did better in the financial crisis, yet they have been getting killed ever since by the regulatory response that Dodd helped usher in. From this, one might almost get the impression that Dodd-Frank rewarded big banks for their bad behavior.
The problem is that those capable of organizing two-car, ten-car, and hundred-car funerals are also capable of more perfidious behavior. During Dodd's Senate tenure, when he served as ranking member and then chairman of the Senate Banking Committee, the smart funeral organizers at Countrywide Mortgage made sure that he and many other officials in financial oversight got sweetheart deals on their own mortgages. The agenda behind this long-running VIP program was to ensure that Fannie Mae and Freddie Mac would continue buying the riskier loans in Countrywide's portfolio and re-selling them on the secondary market.
The big bankers got what they wanted. Americans got a financial crisis. And then the big bankers got what they wanted again. That's the what Dodd-Frank wrought. Dodd, and his co-author, former Rep. Barney Frank, have ended their long congressional careers, and no one is grieving for that. But there is much to regret about their malign legislative legacy, and now would be a good time to arrange its two-car funeral.