From the Wall Street Journal.
What is the cost of overregulation? Bank of America appears to have provided part of the answer by announcing yesterday that the nation’s largest bank will cut 30,000 jobs between now and 2014. CEO Brian Moynihan said the bank’s plan is to slash $5 billion in annual expenses from its consumer businesses.
Mr. Moynihan didn’t say this, but we will: These layoffs are part of the bill for the last two years of Washington’s financial rule-writing. After loose monetary policy had combined with insane housing policy to create a financial crisis, the Democrats who ran Washington in 2009 and 2010 enacted myriad new rules that had nothing to do with easy money or housing.
Take the amendment that Illinois Democrat and Senator Dick Durbin (with the help of 17 Senate Republicans) attached to last year’s Dodd-Frank financial law. Mr. Durbin’s amendment instructed the Federal Reserve to limit the amount of “swipe fees” that banks can charge merchants when customers use debit cards.
How exactly does forcing banks to charge Wal-Mart less money for operating an electronic payment system prevent the next financial crisis? Readers may wait a long time for a satisfactory answer, but the cost of this Dodd-Frank directive is straightforward.
The Fed dutifully ordered banks to cut their fees almost in half. Bank of America disclosed in its most recent quarterly report that this change will reduce the bank’s debit-card revenues by $475 million in just the fourth quarter of this year. The new rules take effect on October 1, so BofA seems to have sensible timing as it begins to shed workers from a consumer business that has become suddenly less profitable by federal edict.
Make that the latest federal edict. In 2009, when a comprehensive overhaul of financial regulation was still a gleam in Barney Frank’s eye, President Obama signed the CARD Act into law. It limited the ability of banks to increase rates on delinquent borrowers and to charge fees on unprofitable customers. As Washington encouraged card issuers to be more selective in advancing credit and to demand higher rates when they do, interest rates on card customers predictably increased relative to other types of lending in the months after the law took effect.
Restricting bank profits on a particular product may have obvious populist appeal, but politicians shouldn’t be surprised if banks decide that such consumer credit operations aren’t good businesses and can function with fewer employees. Add in the various federal programs aimed at extracting penalties for this or that mortgage-foreclosure error and it’s understandable that a bank would have trouble forecasting growth to justify its current work force.
But that’s not all. The Dodd-Frank regulation also caused Bank of America to raise fees on debit cards to $5 a month ($60 a year).
Throwing their weight around at the height of the banking crisis, House Financial Services Chairman Barney Frank of Massachusetts and Sen. Chris Dodd of Connecticut vowed to stick it to banks. They blamed them for the mess to cover up the fact that they forced banks to lend to favored constituencies who could not repay.
The two Democrats pushed through the much-vaunted Wall Street Reform and Consumer Protection Act, which President Obama signed and touted as one of the signature accomplishments of his presidency.
That act, which included a micromanaging amendment on fees, carried a $2.9 billion implementation cost for that alone over five years, according to the Government Accountability Office.
It was nothing but the same old pandering to special interests. Named after Illinois Democratic Sen. Dick Durbin, the amendment limited fees that banks can collect from sellers when their customers make debit card purchases — cutting 44 cent fees to 21 cents.
That little bomb is now why battered Bank of America has no choice but to impose a $5 monthly fee — $60 a year — to consumers to make up for lost revenue.
The “economics of offering a debit card have changed with recent regulations,” a bank spokeswoman told ABC News Friday.
BofA says it stands to lose $2 billion from the arbitrary Durbin price-fixing amendment and now has no choice but to make up for the lost revenue some other way.
Now that consumers will be stuck with that fee, they can thank Dodd, Frank and Obama for that special little spike in inflation tailored just for them.
Other banks, by the way, might follow. And like banks, consumers may respond in a way that is logical to their interests, too.
- Thomas Sowell on the root causes of the mortgage lending crisis
- Democrat Barney Frank admits his role in causing the recession
- If you had to blame the recession on one person, who would it be?
- Who benefits from the Democrats financial regulation bill?
- Wall Street bankers gave Obama millions in campaign contributions
- Who are the ten most corrupt politicians of 2009?
- Thomas Sowell explains how politicians cause recessions while getting elected
- Democrats planning government regulation of more large companies
- Democrats use TARP money to shore up personal fortunes
- Democrats caused the recession and Republicans tried to stop it