Unfortunately, our governmental leaders thought they had to create a new set of rules for the banking industry. They saw that there was a problem with banks that were too big to fail. They wanted to create a system that would cut off the possibility of a 2008 replay when the federal government had to step in and loan funds to the banks to save the system.
Shockingly the intended effect of the Dodd-Frank bill crafted by two people with little actual knowledge of the banking industry worked in reverse. Because of the huge cost of regulations created by the bill and prior regulation, the number of banks has plummeted from 12,000 in 1995 to fewer than 6,000 in 2012. In 2012, the total numbers of banks decreased by 350 even though the economy had been in recovery for three years.
You may not notice fewer banks in your neighborhood because the branches were filled by the “too big to fail.” If they were too big to fail before, they certainly are more so today. Chase, Wells Fargo, Bank of America, and Citibank are swallowing up the universe. In 2001 the five largest banks held 30% of the banking assets. By 2011, the five largest banks held 48% of total banking assets. So much for solving too big to fail.
Mainly because of regulations smaller banks are being crippled, and bankers interested in startups are foregoing opportunities. A president of a regional bank told me that 10 years ago they had five people dedicated to dealing with regulations. They now have 100 full-time employees working to keep the government at bay. New regulations have shut down the second trust deed business in California. Wells Fargo has taken over a massive share of the home loan market. No one sees this getting any better because Dodd-Frank just started to actually go into effect, and the Consumer Financial Protection Bureau is just beginning to attack the free market in the name of protecting the average citizen.
Which brings to mind this thought: Perhaps this column should not have been written because the government do-gooders could start to destroy the brewery business as well, in the name of protecting us from ourselves. More importantly, wait until the next economic downturn to see how much money has to shuttle out to the big five banks to keep us from economic Armageddon. That is what happens when you have 2,000-page bills written by no-nothings.