Published on January 4th, 2013


The Price Of Over-Regulation: Dodd-Frank

 One of the major policy initiatives of President Obama’s first term served to be a lightning rod of criticism from everyone from Republicans to Democratic financial advocates. As with any policy that is born out of hast, Dodd-Frank bears many of the tell-tale signs of good intention meets poor execution. Unfortunately for the U.S. economy, the repercussions will have a lasting effect, as it directly effects near term unemployment and long term corporate profitability.

What is Dodd-Frank?
The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) has caused a stir since its invocation back in 2010. A response to the financial crisis and subsequent recession, it was meant to prevent the type of systematic ills from reentering the marketplace. According to the Senate Banking Committee, the intent of Dodd-Frank was to:

Create a sound economic foundation to grow jobs, protect consumers, rein in Wall Street and big bonuses, end bailouts and “Too Big to Fail”, and prevent another financial crisis.

What is the problem with Dodd-Frank?

Although the intentions of the writers sound noble enough, the law is proving to short-sighted and poorly executed. Democrats at the time, having held a “super majority” in the House and Senate, attacked a sector that they have openly loathed by pushing through this hasty series of regulations.

Dodd-Frank was born from the natural reflex of any governing body is to protect its citizens from a wrong once it has been committed. The is no denying that a fix to an unchecked industry was needed; however given the scope and magnitude of the parties involved, a more bipartisan and means tested solution was called for. Unfortunately that did not happen.

In addition, Dodd-Frank posed many issues for the private sector due to the way it has been rolled out. It was to the long list of policy decissions and tone that have instigated “policy uncertainty [that] has been at historically high levels over the past four years…which is associated with [the] substantially lower levels of output and employment” (Baker, pg. 13).

As it stands, Dodd-Frank has caused massive expenditures to banking, mortgage, finance and investment firms that fall under its jurisdiction. Although not yet fully implemented, it casts a massive shadow of limited profitability over these industries, which in turn directly affects the U.S. and Global populations and their respective economies ability to expand.

Although the law has boosted the need for competent compliance officers due to costly Dodd-Frank related programs, the economic trade-off has been a series of job cuts and streamlining. Preparation for Dodd-Frank and uncertainty of the Fiscal Cliff have promoted what have become periods of record earnings for the private sector, because they have streamlined operations in response. These margins have come with a cost. Cyclical productivity, a measure of productivity per employee, has been showing signs of being maxed and ceasing to expand for the past couple years, which is translating to signs of private sector contraction.

Banking giants such as Bank of America and Citi Bank have recently preempted the impact of Dodd-Frank by planning for downsizing to accommodate for the decreased profitability. Beyond over-regulation from Dodd-Frank, 2009’s CARD Act “limited the ability of banks to increase rates on delinquent borrowers and to charge fees on unprofitable customers” (WSJ, 2011). By cutting off this major source of revenue, the government forced the banking sector’s hand in finding ways to remain profitable.

Other firms are selling off division to offset the over-regulation due to indirect exposure. One such firm is MetLife citing “uncertain marketplace and regulatory environment [which] require a tremendous amount of resources. Exiting the depository business and deregistering as a bank holding company will also enable MetLife to operate within the same regulatory framework as other insurance companies” (Frye, 2011).

Restricting bank and other financial sector profits may offer obvious appeal to some (especially the “Occupier” and other fringe Democrat sects); however Washington should not be surprised if the private sector decides that dealing with such restrictions is not good businesses and can continue to function with fewer employees.

Considering the U.S.’s considerable unemployment problem: 7.7% unemployment in addition to the lowest labor participation rate since WWII, politicians should be advised that moving forward with full implementation is unwise. By reconsidering this legislation and opening it up to constructive dialogue to address matters in a bipartisan, logical and economically beneficial manner, Washington can remove a major impediment of economic growth. Regulation of sectors is vital and its intent should be to create a fair marketplace that promotes profitability and growth. Unfortunately for the U.S., Dodd-Frank takes into account neither and its long term ramifications will prove to be extremely adverse for the economy and stunt full recovery.


ABOUT THE AUTHOR: Erol Senel has been plying his trade in the world of finance and personal investing. Through this real world experience, he has found his true professional passion in economics and financial history.

Twitter: @senelslant


Baker, S. R., Bloom, N., Davis, S. J. (2012, Oct & Nov). Uncertainty and the Economy. Policy Review, 175, 3-13.

Banking (2010, July 1). Brief Summary of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Senate Banking Committee. Retrieved from

FoxNews (2012, Nov 12). CEO of Papa John’s says employees’ hours will likely be cut due to ObamaCare. Fox News. Retrieved from

Frye, A. (2011, Oct 12). MetLife May Sell Mortgage Business to Focus on Insurance. Bloomberg. Retrieved from (2011, Sept 13). The Dodd-Frank Layoffs: As regulation cuts profits, Bank of America cuts 30,000 jobs. Wall Street Journal Online. Retrieved from

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