It’s Not Too Late to Fix Dodd-Frank
It’s been nearly three years since Congress passed the Dodd-Frank Act to overhaul our financial system. While we agreed with many of the goals of the financial reform law, the results are moving us farther away from the well-functioning, well-regulated capital markets we need to fuel economic growth and job creation.
Why is Dodd-Frank falling short?
First, the law was built on the faulty premise that regulators can or should try to eliminate all risks in the system. Better risk management by both regulators and financial companies is a good idea. However, trying to eliminate all risks and risk taking will hinder our ability to fund new ideas, startups, and expansion in our Main Street economy. Reasonable risk taking drives innovation, jobs, and growth. We must find a balance that allows people to pursue their dreams while carefully managing systemic risk.
Second, U.S. lawmakers assumed the world would follow America’s lead on financial regulatory reform. Instead, regulators both here and across the globe are adopting differing and conflicting approaches, often seeking to enforce them outside their own borders. We must coordinate with other economies to ensure that we have a compatible international system that puts businesses on a level playing field and protects global markets.
Third, the law took for granted that regulators would coordinate and together create a coherent system. But we have 20 agencies working on 400 different rules—many of which are overlapping or contradictory. There’s little consideration for how the rules might interact or how businesses can best comply with them. Capital providers need predictable rules so that they can take appropriate risks and provide our economy with the financing it needs to grow and prosper.
Finally, the law was built on the fantasy that we can make the financial services industry less complex and less diverse without jeopardizing capital, investment, risk management, and liquidity. We shouldn’t constrain the size or scope of companies, apply bank-like regulation to all large non-banks, or make regulatory costs so high that companies can’t innovate and grow. Dodd-Frank does all of these things and, as a result, limits choices, supply, and access.
If we don’t build our financial regulatory system on sound policies, our capital markets will become less competitive and drag down the economy.
It’s not too late to get things right. The U.S. Chamber recently released the “FAR Agenda,” a set of proposals to fix the provisions that Dodd-Frank got wrong, address the issues that remain unresolved, and replace or abandon the parts of the law that are unworkable. We are not against regulation—we just want smart regulation.