Four years ago, Democratic super-majorities in Congress rammed through some of the most sweeping changes to the U.S. financial system in nearly eight decades. The 848-page law – commonly known as the Dodd-Frank Act – drastically expanded the role of the federal government, giving bureaucrats incredible regulatory power over both small and large financial institutions.
Particularly troubling is the impact of Dodd-Frank on community banks and credit unions, which have been saddled with excessive rules and compliance costs. These burdens adversely affect local economic development, making it more difficult for Americans to start a business or buy a home. In many ways, the legislation that was supposed to prevent another financial collapse on Wall Street has unfairly hurt Main Street.
Eliminating Duplicative Regulation
In September, I introduced the “Financial Regulatory Clarity Act of 2014” to help alleviate the onslaught of onerous rulemaking on the financial sector. The bill would require federal officials to assess whether new regulations are duplicative or in conflict with existing guidelines and then resolve these issues. Inconsistent rules cause uncertainty, preventing local banks and credit unions from serving their customers effectively.
The sheer number of regulations associated with Dodd-Frank is overwhelming. According to the American Action Forum, a nonprofit policy organization, the law’s 398 new regulations had imposed more than $21.8 billion in costs and 60.7 million hours of paperwork by its fourth anniversary. Moreover, Dodd-Frank has yet to be fully implemented.
Fixing the Volcker Rule
One of the costliest and lengthiest regulations is the Volcker Rule, which restricts banks from making speculative trades with their own accounts. Although the rationale for the rule’s adoption was to prevent large banks from engaging in the kinds of risky behavior that contributed to the 2008 financial crisis, the version that financial regulators actually developed last December would have had significant, unintended consequences for banks in Mississippi.
Earlier this year, I joined West Virginia Sen. Joe Manchin in introducing legislation to amend Dodd-Frank to protect community banks in our states and across the nation from losing millions of dollars on their investments. The Volcker Rule would have forced these institutions to dump traditional investments without warning, even though they were never intended for speculative trading. In response to our legislation, financial regulators changed their position and have altered the original rule accordingly. Community banks were not responsible for the economic meltdown in 2008 and should not be punished by a bureaucratic glitch.
Supporting Economic Growth
Local financial institutions in Mississippi and across the country are vital to our economic recovery. They provide credit and capital to consumers and small businesses, which use it to create the majority of new jobs. Burdensome rules that force these banks and credit unions to limit lending and devote significant resources to regulatory compliance pose obstacles to job creation and economic growth. In fact, Dodd-Frank regulation has led to industry consolidation and forced some banks and credit unions to go out of business entirely. Others have chosen not to offer new products or services to customers because of the cost and uncertainty associated with these new rules.
Last year, Ben Bernanke, former chairman of the Federal Reserve, noted the sluggish recovery, intense competition, and mounting regulatory burden faced by community bankers. He said, “Some observers have worried that these obstacles – particularly complying with regulations – may prove insurmountable.” I am hopeful that my “Financial Regulatory Clarity Act” will lead to the implementation of streamlined reforms. Although the misconduct that led to the financial crisis called for corrective action, these measures should not impede financial institutions’ role in promoting economic development.

By Roger Wicker, U.S. Senator