August 11 2012
When Congress Punts, We Pay
When Congress punts, we pay… quite literally it may turn out.
It’s been two years since the president enacted the Dodd-Frank Act, which was said to prevent future downturns like the Great Recession. Yet two years after its enactment, nearly 6 million women can’t find a job, the unemployment rate is on the rise, and people are still struggling to pay their mortgages.
What’s holding the economy back? One factor is the Frank-Dodd Act. When Congress cowers away from making lasting change, it often punts difficult decisions into the hands of unelected regulatory bureaucrats. The Frank-Dodd Act was no exception.
Standard & Poors, who manages credit ratings of sovereignties and banks, believes eight U.S. banks will receive the brunt of costs remaining in the Dodd-Frank Act. They report:
…we believed that the bulk of the new regulations would have taken effect within two years and would have an impact on bank results by 2012 or 2013. However, the regulators have yet to write many of the rules, and many of those that are final have transition periods for their implementation that are longer than we originally expected.
Which means banks still don’t know the full costs of Frank-Dodd’s unwritten regulations. How much uncertainty remains? According to S&P, the eight banks will share costs of $22-34 billion per year. Their former estimate was $19.5-26 billion.
That’s a huge change. Moreover, the range is so large, it is nearly impossible for banks to know the impact of the law. With so little known, how can banks plan for the future or manage their cash flows and reserves?
The Dodd-Frank Act is only one example of Congress punting its responsibilities at the cost of consumers, and it is one with dire consequences. Regulatory agencies should not be in the business of replacing Congressional laws, nor should Congress neglect its duties to enable a robust, stable economy.