WASHINGTON–Five years of the Dodd-Frank Act have meant $24 billion in costs for financial institutions, as well as 61 million “paperwork burden hours,” according to a new analysis.
The only beneficiaries: HR departments at regulators, according to that same analysis, which said employment at financial regulatory agencies has soared at five times the rate of the regulated institutions.
The fifth-anniversary of the expansive Dodd-Frank legislation, which created the Consumer Financial Protection Bureau and which was passed in the wake of the Wall Street meltdown and financial crisis, has been the subject of several congressional hearings, including one this week.
Now the American Action Forum (AAF) said it has compiled research showing that, and that’s before the “21% of the law (that is) still left to implement,” it said.
“One can only expect the costs to continue to rise,” said the AAF, which describes itself as a 21st Century center-right policy institute providing actionable research and analysis to solve America’s most pressing policy challenges.
“Congress passed the Dodd-Frank Act five years ago in an attempt to address the causes of the financial crisis,” said the AAF in its study. “The law has imposed billions of dollars in costs with unclear benefits, with more regulations to be prescribed as regulators continue to slowly implement the law.”
Among the findings:
- The law has imposed tremendous costs, but it appears the height of those impositions is in the past. The charts (below) examine rulemaking costs by year, from July 21, 2010, when Dodd-Frank was passed, to each later year. Year 3 was clearly the high-water mark, and barring increased cost-benefit transparency from agencies, expect that year to continue claiming the highest costs. Given the pace of rulemaking, expect new regulatory burdens to easily extend into years six and seven.
- Although much of the law has already been implemented, there are still dozens of rulemakings in the proposed stage, and dozens more that have not yet been proposed. The study cites research by the law firm Davis-Polk that suggests only 60.3% of the Dodd-Frank Act’s provisions have been finalized, and that another 21.5% remains to be proposed. AAF said that combined those new rules could add another $7.8 billion to the law’s tally and more than 1.7 million paperwork hours.
- By imposing 61 million paperwork burden hours and costing more than $24 billion, Dodd-Frank is restricting growth in the financial services industry, according to the AAF. “While many of the rules enacted under Dodd-Frank are intended to limit risk among the largest financial companies, small firms seem to be paying the price with stagnant job growth,” the organization said in its analysis. “…While the largest financial companies seem to be unaffected by Dodd-Frank, small and regional firms appear to be absorbing most of the bill’s costs.”
- Mirroring slow growth in the number of businesses in the financial industry, the industry’s employment levels only increased 3.7% from 2010 to 2014,” the AAF said. “Within the industry, what types of firms grew? Again, it was the largest financial companies as employment in businesses with 1,000 or more workers advanced 13.2%. Meanwhile, employment in small and regional financial firms have either stagnated or contracted.”
- According to AAF, “one of the largest illustrations of the increase in financial regulation since Dodd-Frank’s passage is the growth in employment in financial regulatory agencies, which stands in stark contrast to the lack of growth in banking and finance…While jobs in the financial industry only increased 3.7% since Dodd-Frank became law, the number of jobs at federal financial regulatory agencies spiked 19.2%. However, this understates the growth in employment in some agencies. For instance, the number of workers at the Federal Housing Finance Agency and employees at the entire Federal Reserve System (all Federal Reserve Banks and the Board of Governors) increased 37.1% and 32.2% since Dodd-Frank.”
The full study can be found here.