A new poll released today by Hamilton Places Strategies (summary here) shows that Americans support financial regulatory reform, but are deeply concerned about its effect on economic recovery and distrustful of Congress’s ability to pass a bill that improves banks’ treatment of consumers. Most importantly, the poll shows the public’s top priority of regulatory reform to be putting an end to taxpayer bailouts. A few key points from the poll:
• Fifty-two percent of respondents are concerned that “Congress will pass new financial services regulations that will actually raise costs for average consumers and small businesses or reduce the availability of loans, credit and other financial services to average consumers and small businesses.” Thirty-four percent have some, very little, or no concern at all.
• Seventy-two percent of respondents have some, little, or no confidence at all “that Congress can pass financial services regulations that will significantly improve the way banks and financial institutions treat customers by giving customers more rights.” Fifteen percent have a great deal or quite a bit of confidence.
• When asked which goal of regulatory reform is most important to them, 33 percent marked their top priority as “reducing or even eliminating the need for the federal government to ever step in and bail out large financial institutions.” Only 12 percent believed that the creation of a “new Consumer Financial Protection Agency with rules about how banks treat customers” should be a top priority. Among Independents, support for a CFPA as top priority falls to only 8 percent.
These numbers may lead to trouble for Senator Christopher Dodd’s financial regulatory reform bill, which doesn’t address the problem of too-big-to-fail, and in fact compounds it:
• Peter Wallison and David Skeel explained in yesterday’s Wall Street Journal op-ed, “The Dodd Bill: Bailouts Forever,” that giving the FDIC authority to step in and take over large nonbank financial institutions will “reinforce the idea that the government is willing to intervene on behalf of large and politically connected financial institutions, thereby institutionalizing ‘too big to fail.’”
• The creation of a $50 billion “orderly liquidation” fund, paid for by upfront assessments on financial institutions, will both raise costs for consumers and give “the creditors of any company that is resolved under the Dodd bill … a chance to be bailed out.”
• The Dodd bill, which establishes tiered supervision for the Federal Reserve over bank holding companies with assets greater than $50 billion, will, according to Fed Chairman Ben Bernanke, establish the Federal Reserve as the “too big to fail regulator.” The implied government protection over large firms, according to Wallison, will provide them with “a lower cost of funds and thus significant competitive advantages.”
The Dodd bill has a long way to go before it meets the concerns of Americans on financial regulatory reform. More must be done to prevent the moral hazard of too-big-to-fail and end the prospect of taxpayer-funded bailouts.
Jon Flugstad is a government relations associate at the American Enterprise Institute.
