On its fifth anniversary, Hensarling slams Dodd-Frank

by Ryan Smith22 Jul 2015
The chairman of the House Financial Services Committee had sharp words for the Dodd-Frank Act during a speech Tuesday at the American Enterprise Institute.

Rep. Jeb Hensarling (R-Texas) said the act, which brought the most sweeping changes to financial reform since the regulation that followed the Great Depression, had resulted in a society that was “less stable, less prosperous and less free.”

“The financial panic of 2008 caused anger against financial firms and the bailouts they received,” Hensarling said. “The liberals’ story was that an alchemy of Wall Street greed, outsized risk and massive Washington deregulation almost blew up the planet. This necessitated enormous taxpayer bailouts and a functional occupation of our capital markets by federal regulators courtesy of Dodd-Frank. Although false, the left’s narrative has permeated the body politic.”

According to Hensarling, the financial meltdown “resulted not from deregulation but from dumb regulation.” He said that the government promoted risky lending practices by encouraging bad loans supported by Fannie Maw and Freddie Mac, while the Federal Reserve’s “highly accommodative monetary policy” helped inflate the housing bubble.
The passage of Dodd-Frank five years ago, said Hensarling, was a knee-jerk reaction that has done more harm than good.

“The Dodd-Frank architecture, first of all, has made us less financially stable,” he said. “Since the passage of Dodd-Frank, the big banks are bigger and the small banks are fewer. But because Washington can control a handful of big established firms much easier than many small and zealous competitors, this is likely an intended consequence of the Act. Dodd-Frank concentrates greater assets in fewer institutions. It codifies into law ‘Too Big to Fail’ and taxpayer-funded bailouts.”

Hensarling also said that Obama’s economic strategy – of which Dodd-Frank is a central pillar – has resulted in an “anemic” economic recovery.

“Had this recovery been as strong as average previous ones, middle income families would have nearly $12,000 more in annual income, and 1.6 million more Americans would have escaped poverty,” he said.

He also took a swipe at the Consumer Financial Protection Bureau, saying the agency – created under the aegis of Dodd-Frank – has negatively impacted minority borrowers.

“How does Dodd-Frank’s Orwellian-named Consumer Financial Protection Bureau (or CFPB) impact minority borrowers?  A recent Federal Reserve report states that within a few years roughly one-third of black and Hispanic borrowers may find themselves disqualified from obtaining a mortgage to buy a home because of CFPB’s ‘Qualified Mortgage’ rule based solely on its rigid debt-to- income requirements,” he said.

Overall, said Hensarling, the act has been a failure.

“Before the next economic downturn, Congress should replace Dodd-Frank,” he said. “With this modest first step, together we can begin to win back America’s promise.”


  • by Brad | 7/22/2015 11:08:26 AM

    WOW! Hensarling - a politician and legislator that is actually MAKING SENSE and understands what is going on, according to this piece. Question- where the heck were you Hensarling five years ago when the ridiculous Dodd-Frank bill was passed!!! AND- what do we do now?

    Please, Hensarling, follow through on what you are saying and abolish the Dodd-Frank and the CFPB. We need more competition with smaller banks, less sweeping regulation that misses the mark penalizing our country's entrepreneurs and for goodness sake - fix the residential appraisal process and the gross injustice that is being served to consumers.
    Thank you!!!!

  • by jburns | 7/22/2015 2:21:24 PM

    Jeb Hensarling is exactly right. Whenever the regulators outnumber the producers of goods and services of any industry you have major economic repercussions. The "rule makers" today are just strangling the housing finance industry and the health care industry. The consequences are less competition, higher consumer costs, less service provided and a weak overall economy. Over regulation stifles the necessary creative enthusiasm, and energy of people trying to work and compete in any industry. The two crises I have experienced in my lifetime of working in the housing finance area were both created by our Federal Government acting and reacting with regulation or deregulation in an industry they did not understand the consequences of their actions, i.e. the Savings and Loan Crises and the housing crises. In both they created the problems and and over reacted to fixing the issues in the name of consumer protection. Dodd Frank is the worst thing that could have happened to the housing industry. We are still throwing rules and regulations at problems, that were caused by the Federal government, seven years after they were fixed.

  • by Warren Goldberg, CMPS | 7/23/2015 5:49:23 PM

    WOW. Finally some rational and ACCURATE analysis of this abomination known as Dodd-Frank. Keep going Rep Hensarling! Follow through!


Should CFPB have more supervision over credit agencies?