Change Pays

By Doug Farmer — 

If Donald Trump’s victory in November’s election did not mean the end of the world, his detractors were certain it meant the end of a few accomplishments of the previous administration. His supporters were confident of such as well, many voting for Trump for that reason.

Perhaps not as frequently criticized as Obamacare, the Dodd-Frank Wall Street Reform and Consumer Protection Act was among those targeted liberal reforms.

By liberal assumptions, the GOP is the party of big banks and Wall Street. The Democrats would never have had the interests of big finance in mind when they passed the act in the summer of 2010 as a response to the financial crisis.

Whether or not that is the case is a moot point. Six years later, big banks have embraced the dreaded Dodd-Frank. Do not look to the Republican Party’s electoral success to secure the act’s repeal.

One of the known, but theoretically unintended, consequences of the Dodd-Frank Act was that it raised the cost of doing business in the financial industry. Naturally, that led to griping in the market and created a political bull’s-eye for the new president to target.

However, big bank CEOs quietly recognized the benefit of raising the cost of doing business: It is harder for smaller banks to do business. With every bump in regulatory cost, the capital needed to run a bank jumped as well. The smaller your original profit margin was, the more these increases hampered your growth and jeopardized your future.

Suddenly, the likes of Goldman Sachs see no reason for Dodd-Frank to depart. They certainly have not clamored for it since Trump’s victory. Goldman Sach’s CEO, Lloyd Blankfein, has publicly predicted an opportunity for Goldman Sachs to increase its market share.

“This is an expensive business to be in if you don’t have the market share and scale,” he said more than two years ago. “Going forward, we believe that these requirements will likely lead to only a handful of players being able to effectively compete on a global basis.”

The ability to “effectively compete” not only keeps banks of a smaller size from competing worldwide with Goldman Sachs, but it also reduces the ability of small banks to thrive. Dodd-Frank’s regulations may not have been designed with community banks in mind, but they assuredly affect those banks. The same goes for further regulations created as forms of follow-up to Dodd-Frank.

Those additional expenses also raised the cost for new banks to enter the field.

Nationally, the number of banks with less than $100 million in assets has fallen steadily for two decades, but only in the last five years has it plummeted. That is due more to a decline in new bank charters than it is to an increase in the annual number of failures or mergers, per Federal Reserve Governor Jerome Powell.

In Wisconsin, no bank has opened since Spring Bank in Brookfield in 2008—a drought by any measure.

The Dodd-Frank Act intended to stave off another recession.

It focused on Wall Street and the biggest banks. Yet, the regulation benefits them and instead hurts the rest of the industry.

Doug Farmer has worked at Park Bank since 1981 and began his term on the State of Wisconsin Banking Review Board in 2003. He’s lived in La Crosse since 1971. You can reach him at

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