Dodd-Frank Making "Too Big to Fail Banks" Even Bigger

The Panama Canal was one of the largest and most difficult engineering projects ever undertaken. It required the construction of the Gatun Dam, which at the time was the largest dam in the world; the creation of the Panama Railway, for transporting the heavy-duty equipment to the remote location; and formed three sets of ship’s locks, then marking the largest concrete pour in the world.

Needless to say it was a lot of work, about 20 million man-hours to be exact, but the payoff was exceptional – ships could now travel between the Atlantic and Pacific in half the time previously required. World commerce was forever changed.

According to a new study by the House Financial Services Committee the work it takes to comply with the Dodd-Frank financial reform will dwarf the construction of the Panama Canal. The Committee found that it will take an estimated 24 million man-hours every year to comply with the 185 rules currently in place under the Dodd-Frank bill.

Unfortunately, that total is misleading given that only 185 of the 400 required rules under the bill have been finalized. “I think the question will be: What will be the final number?” Neugebauer told the Daily Caller. “How many millions of man hours will be required [to comply with Dodd-Frank] when all 400 rules are completed?”

Even still, it is not as if we can overlook the 24 million man-hours already being devoted to nothing but compliance. That is the equivalent of 12,000 full-time workers solely devoted to making sure that businesses don’t run afoul of Dodd-Frank’s onerous provisions. If those people are paid an average wage of just $32,000 (unlikely given the technical nature of the work) then that means $384,000,000 is being diverted away from investment, research, or other socially productive uses of money toward salaries for people who produce nothing.

Perhaps this enormous expenditure of time and money could be seen as worthwhile if Dodd-Frank was written to actually prevent future crises. Instead, it may threaten to make such economic downturns happen more often.

That’s because rules and regulations tend to chart a funny course: at first big companies spend enormous amounts of money to lobby against the creation of red tape, but over time they tend to change their mind and fight for the red tape to stay.

Why? Because big companies with big revenue streams and lots of employers can survive costly regulations, whereas small ones can’t. In the end, as small employers are forced out business because of costly regulations, the big companies can not only recoup the losses of compliance, but more, since they can gain market share. Even better, the red tape comes to serve as a hurdle for any potential new entrants to the market, providing an even greater edge to existing companies.

It should come as little surprise then that “too big to fail” banks have only grown since the passage of Dodd-Frank. Bloomberg reports:

“Two years after President Barack Obama vowed to eliminate the danger of financial institutions becoming “too big to fail,” the nation’s largest banks are bigger than they were before the nation’s credit markets seized up and required unprecedented bailouts by the government.

. . . The Big Five [JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, and Goldman Sachs] are about twice as large as they were a decade ago relative to the economy, sparking concern that trouble at a major bank would rock the financial system and force the government to step in as it did in 2008.”

Twice as large! Although it may seem incredible to think have fast these banks have grown, it was an outcome predicted by Republicans throughout the debate over Dodd-Frank. Community banks, credit unions, retirement funds, saving and loans, and other smaller financial institutions that add diversity and choice to our banking system simply don’t have the budgets to be able to comply with the myriad rules and burdens being placed upon them.

The result is that Americans have a tougher time finding a loan. If they find one there is less competition, so they are forced into a higher rate. And if they don’t, then the economy suffers from a lack of investment in our economy.

Is this really the outcome we want for all of the man-hours being put into implementing this flawed bill? At least the Panama Canal, which took 20 million man-hours to build, ended up saving countless hours of travel time. Dodd-Frank – a law which will eat up 24 million man-hours each year – will do nothing but waste it.