The chairman of the House Financial Services Committee blasted the Dodd-Frank Act’s Volcker Rule as “a solution in search of a problem” Wednesday at a committee hearing
The chairman of the House Financial Services Committee blasted the Dodd-Frank Act’s Volcker Rule as “a solution in search of a problem” Wednesday at a committee hearing.
Rep. Jeb Hensarling (R-Texas) said the rule, which passed in December, would create undue regulatory burdens on “job creators and capital markets” and cost jobs.
In simple terms, the rule bans banks that accept federally insured deposits from speculating with that money, thereby keeping investment banking essentially separate from retail banking activities like mortgage lending.
But Hensarling said the 932-page rule heaped needless regulatory burden on financial institutions in return for minimal benefit.
“Of the 450 financial institutions that failed during or as a result of the financial crisis, not one failed because of proprietary trading,” Hensarling said. “In fact, financial institutions that varied their revenue streams were better able to weather the storm, keep lending and support job growth.
“Instead, bank failures as we all know came largely from a concentration in lending in poorly underwritten residential real estate and sovereign debt markets,” he said. “And who helped steer them into these markets? Regrettably, Washington. Between Fannie and Freddie’s Affordable Housing Goals, the CRA, NRSRO designations -- just to mention a few -- Washington regulators regrettably incented and blessed it all. The great public policy tragedy of the financial crisis was not that Washington failed to prevent the crisis but instead that Washington helped cause it. Now with the Volcker Rule, Washington is doubling down on its catastrophic mistakes.”
Hensarling insisted that the rule, far from stabilizing the economy, would have a chilling effect on economic growth.
“I am unaware of any economist or regulator who has been able to quantify precisely the Volcker Rule’s benefits,” he said. “Many say the rule reduces risk in the financial system. That may be true, but studies that I have seen are mixed at best. And I remind all that without risk, there is no investment.”
Rep. Jeb Hensarling (R-Texas) said the rule, which passed in December, would create undue regulatory burdens on “job creators and capital markets” and cost jobs.
In simple terms, the rule bans banks that accept federally insured deposits from speculating with that money, thereby keeping investment banking essentially separate from retail banking activities like mortgage lending.
But Hensarling said the 932-page rule heaped needless regulatory burden on financial institutions in return for minimal benefit.
“Of the 450 financial institutions that failed during or as a result of the financial crisis, not one failed because of proprietary trading,” Hensarling said. “In fact, financial institutions that varied their revenue streams were better able to weather the storm, keep lending and support job growth.
“Instead, bank failures as we all know came largely from a concentration in lending in poorly underwritten residential real estate and sovereign debt markets,” he said. “And who helped steer them into these markets? Regrettably, Washington. Between Fannie and Freddie’s Affordable Housing Goals, the CRA, NRSRO designations -- just to mention a few -- Washington regulators regrettably incented and blessed it all. The great public policy tragedy of the financial crisis was not that Washington failed to prevent the crisis but instead that Washington helped cause it. Now with the Volcker Rule, Washington is doubling down on its catastrophic mistakes.”
Hensarling insisted that the rule, far from stabilizing the economy, would have a chilling effect on economic growth.
“I am unaware of any economist or regulator who has been able to quantify precisely the Volcker Rule’s benefits,” he said. “Many say the rule reduces risk in the financial system. That may be true, but studies that I have seen are mixed at best. And I remind all that without risk, there is no investment.”
