Western Michigan University Political Science Professor Kevin Corder says “when Wall Street is the villain” everyone is on board for financial reform. He says bankers don’t seem to be the villains now.
Corder says a negative perception of Wall Street helped bring about the Dodd-Frank financial reform package that passed in 2009. But he says now the landscape is ripe for scaling back those regulations. Corder researches and writes about financial regulations, including two books on the Federal Reserve.
The Dodd-Frank legislation followed the financial collapse of 2008. Corder says most analysts agree that the banks are better able to withstand a financial shock, and lending is back up. But Corder says banks object to the costs of compliance. He says there are big administrative costs in hiring people to ensure they are following the rules. Banks also have said the capital requirements are too restrictive.
Corder says smaller community banks have a legitimate complaint that they do not pose a serious risk to the financial system, but have to follow the same consumer financial protections as big banks. But Corder says there is a danger in trying to make changes. He says larger banks have more lobbying influence. “You open the door for reform the large bank's lobbyists come through.”
Even though Dodd-Frank was a response in part to banks that were “too big to fail,” Corder says big banks have gotten larger under Dodd-Frank. He says there’s also a wide gap between big and small banks. Corder says one idea is a cap on bank size, compared to GDP, but that hasn’t gotten any traction.
Corder says the goal of financial regulations is to prevent the making of bad loans in the first place, if financial institutions fail to stop that from cascading onto others. And he says if there is a wider impact to resolve the failure so taxpayers don’t have to pay for the bailout. Corder expects the Trump administration and the House to aggressively pursue a rollback of the Dodd-Frank regulations. But he says the Senate could be the road block to any major changes.