Killing Mainstreet Banks

C. Boyden Gray and Adam White make the case that Dodd-Frank is an enormous gift to big banks, for two reasons:

  • By putting large banks in a special class -- essentially too big to fail -- it ensures that these banks will be able to raise capital far more easily than can smaller banks, since investments in larger banks are essentially guaranteed by the US government.  This is the same mechanism by which Fannie and Freddie crowded out most other sources of mortgage financing.
  • By creating an enormous mass of new regulations, large banks get a cost advantage because they can much more easily pay these fixed costs as they are amortized over a much larger business.


  1. Daublin:

    The picture on the link is pretty cute. It has people with bags of moneys for heads cuddling up and scalp-massaging the U.S. president.

  2. Nehemiah:

    Of course it favors big banks. It will be easier for the gov'mint to take over big banks whether they are too big to fail or not. Not easy to corral 1,000 community banks. As far as the gov'mint is concerned bigger is better public or private.

  3. Rick Caird:

    Maxed Out Moma has been saying that since Dodd Frank passed. That is why it needs to be repealed.

  4. herdgadfly:

    Government is always changing the the landscape for banks. If you recall, interstate banking was forbidden and some states did not permit bank branches until the law changed in 1994. Until recently, credit unions were restricted from competing for many bank services and of course the S & L scandal directly affected the extent to which banks engaged in mortgages financing - as did the new world of Fannie (FNMA) and Freddie (FHLMC) in recent times.

    Bank combinations have been occurring frequently since branch banking was permitted and this will continue. The little guys are all just about gone and those that have not been swallowed are banding together in cooperatives.

  5. mesocyclone:

    The banking situation is one where government needs to act. If big banks are truly too big to fail (their failure will cause ruinous economic destruction forcing government bailouts), then they shouldn't be allowed to exist. If they aren't too big to fail, then the government should butt out.

    The financial crash showed that there do appear to be entities whose failure cannot be allowed. Hence we need to change that situation - even if it does involve government intervention in the "free" market. The existence of these banks and the resulting need for government protection has created externalities, and even free marketeers believe that externalities should be dealt with at some level.

    The biggest problem, as Dodd-Frank showed, is that the current government is completely incapable of that intervention.

  6. Bob Smith:

    Dodd-Frank is making direct gifts to banks, too. Right now the Consumer Protection Agency created by Dodd-Frank wants to implement rules regarding owner-financing of real estate that would require sellers to essentially do the same investigation of the buyer and their ability to pay that a bank does. It's all to "protect the buyer", of course, but would almost certainly have the side effect of eliminating seller financing and its competition to bank loans.

  7. DPG:

    I work at a TBTF bank. We recently had some merger activity and there's a management consultant who sits right behind me working on merger stuff. I recently overheard him having a conference call with other members of his firm. They discussed a pitch that they were preparing to make to another TBTF bank, proposing that their consultancy develop back office compliance processes specifically tailored to meet the new challenges of Dodd Frank. Millions in fees, I'm sure.