Effects of misguided financial regulations

Business journalist William Cohan asks if the regulatory body go too far in response to the 2008 financial crisis on the US financial sector, especially the Dodd-Frank Act which limited Wall Street’s ability to serve its customers. Enhanced capital requirements and compliance burdens are crippling the supply of credit to consumers and businesses and thwarting entrepreneurship and growth.

After a 17-year career as an investment banker at Lazard Freres & Co, Merrill Lynch and JPMorganChase, investigative journalist, William D. Cohan, bestselling author of House of Cards who understands the inner workings has become alarmed by the vitriol directed at bankers, traders and executives who keep the wheels of the economy moving upwards. Wall Street matters highlight the good deed done by institutions and the dire consequences for us all if the vital role they play in making our lives better is curtailed unnecessarily.

He blames clueless politicians from both parties who led financial regulatory reform, dismissing them as opportunists. He especially singles out Senator Elizabeth Warren, who advocated the separation of investment banking from commercial banking because this would cause financial chaos on the Wall Street, which would work to her political advantage.

He is charging, Paul Volcker, the former Federal Reserve Chairman responsible for the Volcker rule, which limits banks’ proprietary trading, with naivety. Cohen asks. Should we be, returning to Stone Age, with the barter system, when regular people had limited access to credit cards, auto loans and mortgages?   He believes, we have been condemned to slow growth by restrictive regulations.

Although Cohen argument about burdens of regulations, he failed to marshal detailed data on lending to consumers and businesses.

The truth, about Dodd-Frank Act, about bank lending for the high-risk borrowers has been curtailed and regulatory burdens on especially small banks are probably too high. Yet the system has been boosted by shored-up capital, and non-bank lenders like Quicken loans are thriving.

 

Why Wall Street Matters by William D Cohan, Allen Lane £20, Random House $25, 192 pages.