John Cochrane points us to a new article on Dodd-Frank in The Economist, one of the most stinging takedowns of the law I’ve ever read. This passage is particularly sobering:
But most bankers are reluctant to discuss the law in public, and will do anything to avoid commenting on regulators. This is in part due to the risk that, given the industry’s low public esteem, complaining would be inflammatory and counterproductive, perhaps also bringing with it regulatory retribution. A few also see the possibility of gaining an edge: some well established banks consider themselves better able to handle the costs than smaller or newer ones, particularly those that don’t have cushy relationships with regulators. Others, according to the head of one large bank, are quiet only because they do not understand the scope of the changes.
And Cochrane raises the ominous possibility that Dodd-Frank will exacerbate cronyism:
Dodd-Frank is really not about rules at all. It just gives regulators power to decide what you do and how you do it. And it’s going to be awfully hard for even the best intentioned regulator not to slide in to protecting from competition the business he’s regulating (they are “systemically important” after all), or merging goals (“Nice bank you got there. If you were foreclosing a bit slower we sure could help a bit on consumer financial protection approval of that new credit card.”)
As The Economist makes clear, however, making the political case against Dodd-Frank is very difficult, and it’s not clear that enough effort has been devoted to developing an alternative approach to improving the stability of the financial system, despite Cochrane’s efforts on this front.