Economist Alan Greenspan blasted the Dodd-Frank act at PEI Media’s COOs & CFOs Forum on Wednesday, characterizing it as out of touch and overly burdensome on banks.
The framework does not “accurately reflect what our financial system is,” the former Chairman of the Federal Reserve said, adding that the biggest toll of the rules has been on small- to mid-sized banks.
“[It’s] so complex and costly on behalf of institutions that [they] are going straight down because they can’t afford to have a person fill out all of the forms,” he said.
The 2010 Dodd-Frank regulations were implemented in an attempt to avoid the risky practices that led up to the great recession by imposing various restrictions on banks, which have been viewed as complex and burdensome by opponents across industries.
While incoming President Donald Trump has promised to “get rid of” Dodd-Frank, that scenario could prove equally complex. Greenspan was doubtful that a total abolition of the rules was possible.
“The complexity of unwinding one of these policies from the system is extremely difficult,” he said, adding that it’s perhaps possible to “take it apart and maybe bring half of it down.”
Virtually every industry that relies on debt has been impacted by the rules. While agriculture is not as heavily dependent on leverage as some other asset classes, the small- to mid-sized banks Greenspan referred to have traditionally been a key source of credit for farmers and other agribusinesses.
This has led to an increase in the number of private lenders eyeing agriculture, and as Agri Investor has recently reported, it could make private debt an increasingly suitable entry point into agriculture in the near future.
Greenspan went on to convey little faith in regulatory agencies to address long-term problems within the banking industry, saying that it was human nature to act in the short-term to correct problems.
Regarding the incoming Trump administration, he dismissed any additional tax cuts as “the wrong policy,” noting that such cuts are mere “gimmicks” unless you can reduce spending.
It is “going to be very difficult” to fund the infrastructure improvements Trump has promised, he added, noting that it will be up to individual members of congress to introduce bills and get them passed.