WASHINGTON — In a rare public exchange in June 2011, Jamie Dimon asked then Federal Reserve Board Chairman Ben Bernanke what the total economic costs of the year-old Dodd-Frank Act would be.
"Has anyone looked at the cumulative effect of all these regulations, and could they be the reason it's taking so long for credit and jobs to come back?" the head of JPMorgan Chase said.
In a moment of candor, Bernanke said he couldn't "pretend" to know if anyone was aware of what the right balance of regulation and capital ought to be, saying that the Fed's aim was to prevent future crises while encouraging lending by banks.
As the regulatory reform law turns four on July 21, Dimon's question remains unanswered, despite being a recurring concern raised by the financial industry and many Republican lawmakers.
"Jamie Dimon was so criticized for asking that question directly to Chairman Ben Bernanke," said H. Rodgin Cohen, a partner at Sullivan & Cromwell and a leading banking lawyer. "That was not a loaded question. He wasn't saying, 'It was horrible.' He was saying, 'Has anybody looked at it?' — which is a very legitimate question. I don't think anybody can say they have answered that question."
More than three years later, the question has become a rallying cry by the industry as it attempts to obtain data that can help to explain the impact hundreds of new regulations have had on credit availability, job growth and the broader U.S. economy.
The call for better data is to assess the repercussions on the banking industry, but also on the economy more broadly, especially costs that are passed onto individual customers.
"We need to think about what the costs are not in terms of the banks, but in terms of the banks' customers," said Steven Strongin, head of global investment research at Goldman Sachs, speaking at a conference last month while outlining his findings in a recent study.
The new rules have made it more expensive for those seeking banking services, especially individuals who are poorer, he said. His research detailed changes in the cost of lending across 12 key markets from subprime residential mortgage credit to large high-yield corporate lending.
What the study yielded was clear: The trickle-down cost of bank regulation was higher for those in a lower income bracket, drawing roughly $300 — or one week's salary — from an individual paycheck, not a "nontrivial cost," he said. "That's a real impact on those people and that's for people who have access to credit."
It's an argument most economists agree with, said Patrick Parkinson, former director of the Fed's division on banking and supervision and now a managing director at Promontory Financial Group.
"Some portion of the regulatory cost is going to be passed on to the customers, and those most likely to be affected are those that are most dependent on banks for financial services," said Parkinson.
Strongin's study also looked at businesses, which showed that the disparity was even greater between large and small and midsize firms by roughly 100 basis points.
While large firms have had a better than average recovery, he argued smaller firms have had a much worse average recovery. It's no wonder unemployment, which now stands at 6.3%, has been lagging, he argued. It's the smaller firms that hire more in the domestic economy than larger firms, and most of the economic growth has moved into larger firms.
"Effectively what you have done with bank regulation is you're reshaping the structure and contours of the U.S. economy," said Strongin. "We are moving competitiveness into the larger public issuing firms. We are removing competitiveness from small and medium-sized business firms — and there's a real consequence to that."
Strongin's research echoes a worry that Dimon relayed three years earlier to Bernanke: "I have a great fear that somebody will write a book that the things we did in the crisis will slow down the recovery."
Strongin has recommended that policymakers and the industry be more forward-looking by examining the potential impact regulation will have over the next 10 years. How, he asks, will it change the shape of the U.S. economy? What jobs will be lost by changes in corporate structure? Will those individuals with low FICO scores someday be paying two weeks' worth of wages to cover the expense of bank regulation?
"We can think about the underlying economics in a constructive way and begin to actually calibrate whether we have gone too far, and whether regulation is actually where it should be," said Strongin. "Yes, a lot of progress has been made, but it's beginning to be time to look at the price, and that requires really thinking hard about metrics."
Banking experts agree the moment has come for "nonjudgmental analysis" to evaluate the impact of the regulatory reform law.