The ‘Briar Patch’ of Dodd-Frank


The Goliaths are getting bigger. From 1995 to 2009 the six largest banks’ assets increased from 18% of gross domestic product to 68%. They’re considered by regulators, politicians, management and the market to be systematically [sic] important, too big, too interconnected, and therefore too big to fail. Consequently TBTF institutions enjoy a funding advantage over smaller banks, which will be permitted to prosper or fail. – Eric Grover, partner at Intrepid Ventures, a financial services and payments consulting firm in Minden, Nevada.

In an interesting opinion article in the Bank Think editorial section of the American Banker online, here, Mr. Grover lays out his premise that for the Big Banks “Dodd-Frank works to their advantage.”  His evidence begins with the testimony given by the Big Bank execs themselves:

  • Goldman’s CEO, Lloyd Blankfein is quoted as saying that: “…the vast bulk of Dodd-Frank was good and that his firm would “be among the biggest beneficiaries of reform.” *** “We’re not against regulation. We partner with regulators.”
  • On March 7, 2012, Vikram Pandit, then Citi’s CEO, said that due to the near collapse of Wall Street in 2008, “There needed to be changes.”
  • Even JPMorgan Chase EO, Jamie Dimon, a frequent critic of government regulation said that the bank supported 70% to 80% of Dodd-Frank.”
  • “In 2010, it was reported that Bank of America CEO Brian Moynihan said he was voting for Congressman Barney Frank – one of the [Dodd-Frank] principal architects.”

After commenting that “In New York bank CEOs’ social circles, soft leftism is fashionable and they’re uncomfortable making a full-throated defense of free-market capitalism,” the author cuts to the chase.  Herewith are some of the more compelling comments:

  • “Massive regulation provides a deep moat protecting large financial institutions against competition from community banks and innovators. B of A, Chase, Citi and Wells Fargo have legions of lawyers, compliance staff and lobbyists to manage regulators, and they’re hiring more. Wells Fargo increased government relations spending by more than 40% in 2011.”
  • “The more onerous the regulatory burden, the more difficult it is for, smaller banks and new entrants to compete.”
  • “Dodd-Frank has driven a stake into the heart of private-sector banking. Washington now treats the financial-services industry as a public utility, proscribing products it can offer, how it competes and insulating TBTF GSEs from market discipline. Economic growth and consumer and business value are being systematically suppressed.”
  • The Consumer Financial Protection Bureau represents the consumer-activist industry capturing the regulatory apparatus, but it also fortifies behemoths’ position relative to community banks and challengers.”
  • As for the Big Bank regulators, they’re characterized as “…typically folks who’ve never made a loan, much less built a business.”

Conclusion.  In listening to Big Bank Bickering about unnecessary Draconian federal regulations being rolled out by our government, I can’t help but be reminded of Brer Rabbit begging Brer Fox not to throw him into the briar patch.[1]  Perhaps the thicket of massive regulation is exactly what they want in order to stifle “community banks and challengers.”

While I respect and concur with Mr. Grover’s opinions, I’m curious where he believes this will take us over the next four years of [as he puts it] Obama’s dirigiste era….”  Will the smaller community banks – who had no blood on their hands for the financial crisis – survive the cost and complexity of massive regulatory legislation?  And if so, by what strategy?

[1] “‘Drown me! Roast me! Hang me! Do whatever you please, ”said Brer Rabbit. ‘Only please, Brer Fox, please don’t throw me into the briar patch.'” –