The Intended and Unintended Consequences for End Users of Post-Crisis Financial Regulation
- Randy Snook
Regulations implemented in the wake of the financial crisis have had a number of consequences - both intended and unintended - on consumers, households, and venture capital firms, ranging from limited access to credit and mortgages to disrupting supply chains, according to analysts and end users who spoke at SIFMA’s Annual Meeting, The Capital Markets Conference.
The verdict on the Dodd-Frank financial regulations is mixed, said Justin Schardin, director of the Financial Regulatory Reform Initiative at the Bipartisan Policy Center. “Our goal here is to find ways to improve regulation that’s out there… But whenever you make change of this kind of magnitude, there’s no way to escape unintended consequences,” he argued.
Schardin, who recently coauthored a report analyzing the post-crisis financial regulatory structure, said there are a few common and opposing assessments of the reform.
“There’s an argument out there in the political world that all the post-crisis regulation is killing the economy, in terms of lending and other ways… There are economic costs to that, but we’re not seeing a lot of evidence that it’s had a major negative impact on the economy to date. Lending, generally speaking, is increasing at a moderate rate, and access to credit is overall affordable,” he said.
On the other hand, Schardin said “there’s also an argument that all regulation on financial services has to get tougher all the time and any backsliding is a slippery slope to going back to where we were before the crisis. We also don’t find that convincing.”
The panel also looked at some of the consequences of regulation on the economy and, specifically, on consumers and end-users.
“I think consumers have been affected. We know that the housing market has not recovered the way it usually does in a cyclical recovery. And this is one of the contributory factors to the slow recovery itself,” said Martin Baily, director of the Business and Public Policy Initiative at the Brookings Institution, who coauthored the BPC report. Although this may have been expected due to the housing market bubble before the crisis, he identified “a concern that it’s harder for households to get mortgages, that there’s a cutoff below which you can’t get access to mortgage now.” The same goes for consumers getting access to credit, he added.
Schardin pointed to “a similar issue on the small business side.” While he said “most lending has been doing fairly well,” from commercial and industrial to credit card lending and auto lending, “small business has been one of the other exceptions.”
This issue on the small business side has the potential to affect other end users. “The turnover in terms of the products that financial institutions are in and their capacity to support capital raising has been one area where we’ve been impacted,” said Michael Williams, vice president and treasurer at American aerospace manufacturer and defense industry company Orbital ATK. “We’ve had some cost increase that has come as a result of that.”
“The Impact of Regulation on End-Users” panel discussion at SIFMA’s 2016 Annual Meeting, The Capital Markets Conference.
“I can be most successful when I have the greatest number of financial institutions competing to provide those services to get me competitive prices and they’re competing on an equal playing field in this country and abroad,” Williams explained. “I’m unsuccessful when the number of players competing in a different product line dwindles and there are only a few players… the price goes up. So as an end user, we look for free markets and open markets.”
Beyond unintended consequences, J.W. Verret, an assistant professor at the George Mason University School of Law, noted that some of the intended consequences of Title IX of Dodd-Frank “had nothing to do with the financial crisis.”
Read more about the intended and unintended consequences of financial regulatory reform:
Did Policymakers Get Post-Crisis Financial Regulation Right?
Bipartisan Policy Center, September 2016
Martin Neil Baily of the Brookings Institution and Justin Schardin of the Bipartisan Policy Center were panelists on the discussion “The Impact of Regulation on End Users”
Project Invested, September 2016
Randy Snook is Executive Vice President, Business Policies & Practices, SIFMA