July 20, 2015

Why are regulators only concerned with banks not dying and not with banks living well?

Sir, Barney Jopson writes about Barney Frank discussing the impact of the Dodd-Frank Act and the future of regulation. “Architect of banking reforms says walls will not make the system safer”.

Frank, with respect of having joined the board of Signature Bank, and the resulting references to “the ‘revolving door’ between public office and the private sector” says:

“I reject this snarky premise that . . . I have somehow betrayed my principles by facilitating the operation of a bank that does what banks are supposed to do, which is financial intermediation”

Why is it only now Frank Dodd mentions: “what banks are supposed to do, which is financial intermediation”… in the Dodd-Frank Act there is not a word about that.

The stated purpose of the Dodd-Frank Act is: “To promote the financial stability of the United States by improving accountability and transparency in the financial system, to end ‘too big to fail’, to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes”

Had that Act started out by making clear that the number one priority of a bank is to allocate bank credit efficiently to the real economy, and that this is best achieved by minimizing regulatory distortions, we would most certainly have a much better Dodd-Frank Act.

By the way, “Elizabeth Warren and her band of progressive Democrats” have shown no interest in that either. The fact that banks need to hold much more capital when lending to American unrated SMEs and entrepreneurs, than for instance when lending to some AAA rated sovereigns, has been of no concern to them… or to most other involved with regulations.