WASHINGTON — As critics of the Dodd-Frank Act are complaining about the effect of new regulations on the industry, they are also railing against the overall price of the law.
The final tab of the regulatory overhaul promises to be hefty. But while the law is estimated to cost nearly $30 billion, the impact on the federal budget is unclear. Most of that cost will fall on financial institutions in the form of regulatory fees. Meanwhile, the Congressional Budget Office expects the law will cost the government just over $1 billion in the first five years.
Republican lawmakers stress that the costs of the law on both the public and private sectors are not worth it.
"It is Congress' job to analyze each proposed bill to determine whether the quantifiable benefits from enactment outweigh the cost of implementation," said Rep. Randy Neugebauer, who chaired a House Financial Services subcommittee hearing Wednesday on the law's budgetary and economic costs. "Unfortunately, the committee did not undertake this type of cost-benefit analysis when considering Dodd-Frank."
GOP members say the estimated costs on the industry are just the tip of the iceberg. There are the indirect costs, they said, of regulatory reform that come in the form of capital formation, credit availability, and the U.S economy's ability to compete globally.
"That represents a deadweight loss to the economy, in the form of foregone income that could have been used by the private sector to fund investment in capital income, research and development, job creation, or start-up funds for the next great American company," Neugebauer said.
He added that regulators should slow down the rulemaking process in order to do better cost analyses. "My present concern is that regulators are failing to account for the true cost of this [law] prior to implementing the roughly 300 new rules promulgated by" it, he said. "If that means we have to slow the pace of rulemaking in order to give the regulators more time to analyze the impact … then so be it."
But Democrats said the GOP was jumping the gun on calling the law a money pit.
"We are not at a point yet to conclude that Dodd-Frank is costing us too much to implement," Rep. Al Green, D-Texas, said at the hearing. "All legislation costs something."
Testifying at the hearing, Jill Sommers, who sits on the Commodity Futures Trading Commission, advocated for agencies doing cost-benefit analyses as they implement rules. She said the CFTC has had to act in "a compressed time frame" to move rules and acknowledged it has not quantified the costs of them.
"As we add layer upon layer of rules, regulations, restrictions and new duties, my preference is that the commission include in each proposed rule a thorough cost-benefit analysis that attempts to quantify the cost associated with compliance," she said. "If we wait until we issue a final rule to conduct a thorough cost-benefit analysis, the public is deprived of the opportunity to comment on our analysis because there is no comment period associated with a final rule."
Other witnesses, however, were less concerned with the cost of implementing the law, saying the costs would be much greater if the regulatory system were not reformed.
"Measures that inhibit and limit the full and effective implementation of Dodd-Frank will increase the systemic risk in the financial system and substantially raise the probability that we experience another major financial crisis in the near future," said David Min, associate director for financial markets policy at the Center for American Progress.
Douglas Holtz-Eakin, a former CBO director and now president of the American Action Forum, said the cost of the new law will be sizable.
"Dodd-Frank will be an expensive federal endeavor," he said.
But, he added, in the context of annual federal outlays totaling $3.6 billion, the law is "not a key driver of federal deficit or debt accumulation."
The two most significant budgetary aspects of Dodd-Frank — the housing government-sponsored enterprises and the Consumer Financial Protection Bureau — are not on the federal budget, Holtz-Eakin said.
