The first broad-scale academic assessment of new financial rules and standards put in place during the Obama presidency — including the Dodd-Frank Act, Basel III and the CARD Act — finds “causes for concern” about the impact of the rules on growth, credit availability and competition. The eight scholarly papers were commissioned by the Manhattan Institute and are scheduled to be published next year.
For example, one paper showed that Basel’s liquidity standards are redundant at best and destabilizing at worst, a concern long voiced by the American Bankers Association. “Forcing banks to maintain additional liquid assets in a stressful period could constrain credit growth and hurt the economy without providing much new benefit, as the requirement to hold non-borrowed capital already provides a buffer against loss,” noted Manhattan Institute Senior Fellow Nicole Gelinas in a summary of the research.
Other papers found that the arbitrary asset thresholds of $10 billion and $50 billion in Dodd-Frank distort competition and loan pricing, resulting in higher regulatory costs passed on to customers at banks just above these thresholds. “[T]he implications are not good for growth or for competition,” Gelinas said. Researchers also found that the $50 billion threshold has become a barrier to midsize banks’ growth, reducing competition among larger institutions. ABA has long supported tailored regulation to avoid disruptive and arbitrary asset cutoffs.
Researchers also found that rather than reducing supposedly risky activity, Obama-era rules have merely shifted it outside of the depository sector — where it is harder to monitor. They found that Basel rules have shifted repo business to nonbanks, that the interagency leveraged lending guidance has moved the activity outside of banks and that the CARD Act may have moved non-prime borrowers to costlier nonbank consumer finance company products in states with laxer regulations.