During the Obama era, federal regulators’ treatment of the financial industry changed significantly, from the looser approach in the years leading up to the 2008 financial crisis to a more restrictive approach meant to prevent a recurrence of that event. Regulators imposed new rules on everything from leverage—how much a financial firm can borrow—to credit-card fees.
Do the Obama-era laws and regulations help advance these goals? The Manhattan Institute invited eight teams of researchers—led by principal investigator Charles Calomiris, an MI adjunct fellow—from universities, as well as from government (see Appendix), to study how recent regulatory mandates have a effected banks, credit-card companies, individual borrowers and savers, and the economy as a whole. The researchers discussed their findings at a December 2016 meeting chaired by Calomiris. In May 2017, they will present their papers at a public conference, to be chaired by Calomiris. In 2018, the papers will be released in a special issue of the Journal of Financial Intermediation, to be edited by Calomiris. This report summarizes and analyzes the papers' main findings.
Some limitations constrain their research. Many of the new regulations did not take effect until the past few years, so banks and other financial firms have not been through a whole economic cycle under them. Such a cycle would include a recession or an above-average or even average interest-rate environment.
The research conclusions, however, present causes for concern. Some new regulatory measures may harm growth, constraining credit for smaller corporate borrowers without making banks safer in return. Other measures may harm competition, keeping smaller banks from becoming larger banks, thus creating a protected class of preexisting large banks. Still other measures may shift customer costs rather than reduce them, both for bank-account holders and for credit-card borrowers with low credit scores.
Regulations are also inconsistent as to whether the government should be responsible for assessing financial risk or whether that task is the job of the bank executives who receive handsome compensation for doing so. This unclear responsibility makes it difficult to assess progress on the goal of protecting taxpayers from having to bail out big banks on the verge of collapse, i.e., ending too-big-to-fail. Finally, regulatory measures may be transferring risk from the heavily regulated banking system to more lightly regulated competitors—rather than reducing overall risk to the economy.