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The Dodd-Frank Act Five Years Later: Are We More Stable?

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The Dodd-Frank Act Five Years Later: Are We More Stable? THE DODD-FRANK ACT FIVE YEARS LATER: ARE WE MORE STABLE? HEARING BEFORE THE COMMITTEE ON FINANCIAL SERVICES U.S. HOUSE OF REPRESENTATIVES ONE HUNDRED FOURTEENTH CONGRESS FIRST SESSION JULY 9, 2015 Printed for the use of the Committee on Financial Services Serial No. 114–39 ( U.S. GOVERNMENT PUBLISHING OFFICE 97–151 PDF WASHINGTON : 2016 For sale by the Superintendent of Documents, U.S. Government Publishing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800 Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001 VerDate Nov 24 2008 17:11 Oct 26, 2016 Jkt 097151 PO 00000 Frm 00001 Fmt 5011 Sfmt 5011 K:\DOCS\97151.TXT TERI HOUSE COMMITTEE ON FINANCIAL SERVICES JEB HENSARLING, Texas, Chairman PATRICK T. MCHENRY, North Carolina, MAXINE WATERS, California, Ranking Vice Chairman Member PETER T. KING, New York CAROLYN B. MALONEY, New York EDWARD R. ROYCE, California NYDIA M. VELA´ ZQUEZ, New York FRANK D. LUCAS, Oklahoma BRAD SHERMAN, California SCOTT GARRETT, New Jersey GREGORY W. MEEKS, New York RANDY NEUGEBAUER, Texas MICHAEL E. CAPUANO, Massachusetts STEVAN PEARCE, New Mexico RUBE´ N HINOJOSA, Texas BILL POSEY, Florida WM. LACY CLAY, Missouri MICHAEL G. FITZPATRICK, Pennsylvania STEPHEN F. LYNCH, Massachusetts LYNN A. WESTMORELAND, Georgia DAVID SCOTT, Georgia BLAINE LUETKEMEYER, Missouri AL GREEN, Texas BILL HUIZENGA, Michigan EMANUEL CLEAVER, Missouri SEAN P. DUFFY, Wisconsin GWEN MOORE, Wisconsin ROBERT HURT, Virginia KEITH ELLISON, Minnesota STEVE STIVERS, Ohio ED PERLMUTTER, Colorado STEPHEN LEE FINCHER, Tennessee JAMES A. HIMES, Connecticut MARLIN A. STUTZMAN, Indiana JOHN C. CARNEY, JR., Delaware MICK MULVANEY, South Carolina TERRI A. SEWELL, Alabama RANDY HULTGREN, Illinois BILL FOSTER, Illinois DENNIS A. ROSS, Florida DANIEL T. KILDEE, Michigan ROBERT PITTENGER, North Carolina PATRICK MURPHY, Florida ANN WAGNER, Missouri JOHN K. DELANEY, Maryland ANDY BARR, Kentucky KYRSTEN SINEMA, Arizona KEITH J. ROTHFUS, Pennsylvania JOYCE BEATTY, Ohio LUKE MESSER, Indiana DENNY HECK, Washington DAVID SCHWEIKERT, Arizona JUAN VARGAS, California FRANK GUINTA, New Hampshire SCOTT TIPTON, Colorado ROGER WILLIAMS, Texas BRUCE POLIQUIN, Maine MIA LOVE, Utah FRENCH HILL, Arkansas TOM EMMER, Minnesota SHANNON MCGAHN, Staff Director JAMES H. CLINGER, Chief Counsel (II) VerDate Nov 24 2008 17:11 Oct 26, 2016 Jkt 097151 PO 00000 Frm 00002 Fmt 5904 Sfmt 5904 K:\DOCS\97151.TXT TERI C O N T E N T S Page Hearing held on: July 9, 2015 ....................................................................................................... 1 Appendix: July 9, 2015 ....................................................................................................... 69 WITNESSES THURSDAY, JULY 9, 2015 Atkins, Hon. Paul S., Chief Executive Officer, Patomak Global Partners LLC; and former Commissioner, U.S. Securities and Exchange Commission .......... 6 Calabria, Mark A., Director, Financial Regulation Studies, Cato Institute ....... 7 Silvers, Damon A., Director of Policy and Special Counsel, American Federa- tion of Labor—Congress of Industrial Organizations (AFL-CIO) .................... 10 Zywicki, Todd J., Foundation Professor of Law and Executive Director of the Law and Economics Center, George Mason University School of Law ..... 11 APPENDIX Prepared statements: Beatty, Hon. Joyce ............................................................................................ 70 Atkins, Hon. Paul S. ......................................................................................... 74 Calabria, Mark A. ............................................................................................. 87 Silvers, Damon A. ............................................................................................. 104 Zywicki, Todd J. ................................................................................................ 111 ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD Ellison, Hon. Keith: Forbes article entitled, ‘‘The Highest-Paid CEOs Are The Worst Per- formers, New Study Says,’’ dated June 16, 2014 ....................................... 119 Himes, Hon. James: Chart entitled, ‘‘The Five Years Since Dodd-Frank’’ ..................................... 122 Messer, Hon. Luke: American Action Forum article entitled, ‘‘From Free Checking to the Financial Fringe: A Tale of Two Regulations and Low-Income Fami- lies,’’ July 8, 2015 .......................................................................................... 123 Written responses to questions for the record submitted to Todd Zywicki . 128 Stivers, Hon. Steve: Written statement of the Association for Corporate Growth ........................ 130 (III) VerDate Nov 24 2008 17:11 Oct 26, 2016 Jkt 097151 PO 00000 Frm 00003 Fmt 5904 Sfmt 5904 K:\DOCS\97151.TXT TERI VerDate Nov 24 2008 17:11 Oct 26, 2016 Jkt 097151 PO 00000 Frm 00004 Fmt 5904 Sfmt 5904 K:\DOCS\97151.TXT TERI THE DODD-FRANK ACT FIVE YEARS LATER: ARE WE MORE STABLE? Thursday, July 9, 2015 U.S. HOUSE OF REPRESENTATIVES, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. The committee met, pursuant to notice, at 10:05 a.m., in room 2128, Rayburn House Office Building, Hon. Jeb Hensarling [chair- man of the committee] presiding. Members present: Representatives Hensarling, Royce, Lucas, Garrett, Neugebauer, McHenry, Pearce, Posey, Fitzpatrick, West- moreland, Luetkemeyer, Huizenga, Duffy, Hurt, Stivers, Fincher, Stutzman, Mulvaney, Hultgren, Ross, Pittenger, Wagner, Barr, Rothfus, Messer, Schweikert, Guinta, Tipton, Williams, Poliquin, Love, Hill, Emmer; Waters, Maloney, Velazquez, Sherman, Meeks, Capuano, Clay, Lynch, Scott, Green, Cleaver, Moore, Ellison, Himes, Carney, Sewell, Foster, Kildee, Murphy, Delaney, Sinema, Beatty, Heck, and Vargas. Chairman HENSARLING. The Financial Services Committee will come to order. Without objection, the Chair is authorized to declare a recess of the committee at any time. Today’s hearing is entitled, ‘‘The Dodd-Frank Act Five Years Later: Are We More Stable?’’ Before proceeding, I wish to yield to the gentleman from Indiana for a very special introduction. The gentleman is recognized. Mr. MESSER. Thank you, Mr. Chairman. This is unanticipated, but I would like everybody here to meet my son Hudson Messer— stand up, Hudson—who is joining us today. It is his first time at a Financial Services Committee hearing. Thank you. [applause] Chairman HENSARLING. Welcome, Hudson. Take very careful notes. We are not always sure your father does. Mr. MESSER. He was watching the debt clock, though. He was very impressed by that. [laughter] Chairman HENSARLING. He will have to pay for it. I now recog- nize myself for 3 minutes to give an opening statement. Five years ago this month, Dodd-Frank was signed into law. Un- doubtedly, it is the most sweeping and dramatic rewrite of banking and capital markets laws since the New Deal. Weighing in at 2,300 pages, with 400 new rules, it is clearly, clearly dramatic. Whether fan or detractor, this committee would be negligent if we weren’t vigilant in our oversight of both the impact and the im- plementation of Dodd-Frank. Negligent we will not be. (1) VerDate Nov 24 2008 17:11 Oct 26, 2016 Jkt 097151 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 K:\DOCS\97151.TXT TERI 2 So today marks the first of three hearings to be held on the Dodd-Frank bill, posing three different questions. Five years after Dodd-Frank, are we more prosperous? Five years after Dodd- Frank, are we more free? And the focus of today’s hearing, five years after Dodd-Frank, are we more stable? I frankly believe it remains an open question as to whether we have achieved greater stability. I fear the answer is ‘‘no,’’ but were the answer to be ‘‘yes,’’ when you look at the damage Dodd-Frank has done to our economic growth, to family finances and to con- sumer freedom, I am rather doubtful it would be worth the cost. Clearly, balance sheets have improved post-Dodd-Frank and banks have delevered. This is a necessary and good thing, and I strongly suspect that market forces would have brought about these actions regardless of Dodd-Frank. Regulators already possess the powers to have set more prudent capital and leverage standards. Still, Dodd-Frank very well may have been helpful in this regard. What is undebatable is the fact that since the passage of Dodd- Frank, the big banks are now bigger, and the small banks are now fewer. In other words, even more banking assets are now con- centrated in the so-called too-big-to-fail firms. Pray tell, how does this improve financial stability? Dodd-Frank has codified too-big-to-fail into law and provided a taxpayer-funded bailout system in Title I and Title II of the Act. This simply leads to even greater moral hazard and to greater in- stability. According to the Richmond Federal Reserve, the explicit Federal guarantees of financial sector liabilities have increased to a whop- ping 60 percent post-Dodd-Frank. When private investors and de- positors and counterparties expect a bailout, their incentives to monitor risk clearly wane. Regulatory micromanagement is no substitute for market dis- cipline. By this measure, Dodd-Frank has clearly made our finan- cial system riskier. Part of the extension of the Federal backstop has been the cre- ation of a whole new class of too-big-to-fail institutions, namely centralized clearinghouses for derivatives. Here, Dodd-Frank didn’t lessen risk. It just centralized it and placed it on a taxpayer bal- ance sheet. Next, Dodd-Frank’s Volcker Rule, along with the Basel accords, have caused
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