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July 2010: Dodd-Frank Wall Street Reform and Consumer Protection Act
The most sweeping reform of the U.S. financial services industry since the Great Depression, the Dodd-Frank Act was signed into law July 2010, creating some 400 new rules and mandates as well as several new councils, bureaus and agencies. Standing at more than 22,000 pages, Dodd-Frank is such a behemoth piece of legislation that it’s impossible to discuss it comprehensively in such a short space.
Suffice it to say, though, that since it went into effect, a startling number of community banks have gone under, giving borrowers fewer options. Lower-income customers are disproportionately at a loss, as many banks have done away with free checking.
Last year, the Federal Register—the U.S. government’s depository of rules and regulations—hit an all-time high of 81,640 pages. Among the industries that bear the greatest regulatory oversight is financials, which has seen a disproportionate amount of scrutiny in recent years, especially following the 9/11 attacks and subprime mortgage crisis.
Although I agree with the need to have and play by the rules, financial regulations have become so onerous that they render all but the largest firms noncompetitive. It’s a game whose rules are continually shifting, and there often seems to be more referees than players. A recent Thomson Reuters survey found that more than a third of all financial firms spend at least a whole work day every week tracking and analyzing regulatory changes. This is an obligation most companies simply can’t afford in the long term.
It serves no one, least of all investors and borrowers, to have fewer options in the capital markets. But this is precisely what the most recent regulations have contributed to. In the last 20 years, the number of listed companies has been cut in half, and since 2008, one in four regional banks has disappeared.
President Donald Trump and the Republican-controlled Congress are actively working to alleviate any additional regulatory pressure. In January, the House passed a bill requiring securities officials to conduct a cost-benefit analysis of any new rule—something that should have been done in the first place—and in February the president signed an executive order requiring the elimination of two federal regulations for every new one that’s adopted.
As for when those that are already in place can be lifted, in whole or in part, is a different matter.
Having said that, I want to share with you a timeline of the five costliest financial regulations of the past 20 years. Please note that when I say “costly,” I’m referring not only to dollar figures but also additional workload and compliance hours.
October 2001: International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001
Passed in October 2001 as part of the USA PATRIOT Act, this particular act aims to prevent black money from being used to finance terrorist activities. It actually reforms two previous anti-money laundering (AML) laws, the Bank Secrecy Act of 1970 and the Money Laundering Control Act of 1986.
Although I think most of us would agree that catching terrorists is an admirable mission, the AML rules come at a very high cost to financial institutions. According to a 2016 study conducted by the Heritage Foundation, the current rules cost the U.S. economy between $4.8 billion and $8 billion annually. And with so few money laundering cases opened and investigated every year, each conviction since the law went into effect carries an estimated $7 million price tag.
Consequently, many banks, facing strict penalties and compliance costs, have cancelled thousands of “high-risk” accounts, including those belonging to money-transfer firms and humanitarian organizations.
July 2002: Sarbanes-Oxley Act of 2002 (SOX)
Enacted in July 2002, Sarbanes-Oxley, or SOX, was intended to prevent large-scale corporate and accounting fraud that led …read more
Source:: Frank Talk