"Those who argue that housing prices are now at the point of a bubble seem to me to be missing a very important point … We are talking about an entity, homeownership, homes, where there is not the degree of leverage that we've seen elsewhere. This is not the dot-com situation … You're not going to see the collapse that you see when people are talking about a bubble."
— Rep. Barney Frank on the floor of the House of Representatives,
June 27, 2005
As a newbie to American Banker and a Washington outsider, I headed to our Regulatory Symposium in the nation's capital earlier this week in listening mode. In my four months at the Banker, I've often been struck by the way banking and regulatory types inside the Beltway talk of the Dodd-Frank Act as if it were as natural a part of the environment as the air and water. Terms that would befuddle the average MBA grad — CFPB, QRM, FSOC, SIFI, UDAP — roll off their tongues as if they've been with us since the days when banks printed their own currencies.
To me, a lot of it's still alphabet soup. That's probably helpful in understanding what this uniquely Washingtonian response to a crisis looks and feels like to the folks whose day jobs it is to run our nation's banks and parcel out its credit.
To bankers in the trenches, it hardly matters whether you take the Democratic view espoused by Sen. Jack Reed that Dodd-Frank is a thoughtful reaction to recent financial misdeeds or subscribe to the Republican notion that it's a leading culprit in our economic malaise
Bankers of all political stripes now face the prospect of complying with a law that will do everything from raise capital and liquidity standards to dictate how derivatives are traded to determine how much banks charge in debit card fees.
Dodd-Frank co-author Barney Frank argued his case forcefully at our conference. He adeptly got out ahead of critics by asserting that his creation was careful "not to put our business at a competitive disadvantage" internationally and sharply disputed a questioner for asserting that the law hurts community banks.
Raj Date, acting head of the Consumer Financial Protection Bureau, showed impressive poise in asserting that his organization will balance necessary consumer financial protections with the need to let market mechanisms exert most of the discipline the industry needs.
Taken in isolation, such arguments often sound eminently sensible. It's in the aggregate, in weighing benefits against costs and in pondering the unintended consequences, that Dodd-Frank starts to look like a threat to our financial system. At 2,319 pages, including 250 amendments, and with vastly more rulemaking to come, Dodd-Frank's costs are only now starting to mount.
Whether all this will make our financial system safer is an open question. Even Barney Frank would likely concede that the hugely expensive Sarbanes-Oxley Act of 2002, of which he is a fan, has not had the intended effect of wiping out corporate wrongdoing. What's not in dispute is that Dodd-Frank will impose a major drag on the business of commercial banking and have numerous knock-off effects that were neither intended nor necessarily desirable.