ABA President Blames Regulatory Red Tape for Slowing Economic Growth

How can the economy be stimulated when there’s a bigger focus on regulatory red tape than there is on business? asks Frank Keating, president of the American Bankers Association, in a piece he wrote for the Wall Street Journal.

Keating notes a Nebraska bank that has more employees devoted to compliance than it does to lending and bringing in business, comparing it to a manufacturing company that deploys more than half of its employees as Occupational Safety and Health Administration compliance officers—it renders companies unable to grow, let alone contribute to overall economic growth, he says.

The burden of red tape is especially critical for small banks, as it costs them on average two and a half times more than large banks to remain in regulatory compliance.

“More regulation doesn’t necessarily make consumers safer, banks stronger, or the economy healthier,” Keating points out in the WSJ article. “More regulation—if it’s not smart regulation—can have the opposite effect, chilling growth and driving up prices.”

The new regulation implemented by the Dodd-Frank Act will have a significant impact on banks both large and small, considering the 4,870 Federal Register pages of proposed or final rules affecting banks, and a bottom line of more than 240 new rules. And, Keating continues, this comes on top of the 50 or so rules not related to the Dodd-Frank Act that banks have had to absorb in the past couple of years.

Better—not necessarily more—regulation can help stimulate the economy and improve service, but the ABA president called the United States’ federal code “rife with outdated, confusing or counterproductive rules that would fail any cost-benefit test.”

Although President Obama launched a regulatory reduction initiative, those efforts have not been substantive, says Keating, and the new regulations coming down the pipeline will likely reverse any progress that had been made.

Economic growth will happen when solutions are government-enabled, not government-funded, says Keating, adding that the growth he’s referencing isn’t the 13% jump in federal regulatory agency employment.

Read the Wall Street Journal article here.

Written by Alyssa Gerace

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