Former President Bill Clinton spoke at the CME Group Global Financial Leadership Conference last week and had an interesting take on the Dodd-Frank Act and what needs to be done to get the economy moving.
The former President said he agreed with Dodd-Frank in principle but that the regulators needed to push the rules out quickly in order free up lending.
Apparently the Commodity Futures Trading Commission (CFTC) was listening (Commissioner Michael Dunn was in the audience) as they just released a slew of new rules under the Dodd-Frank Act.
President Clinton stated, “The bill, probably out of necessity, left so much up to regulations yet to be published, commented on and approved that one of the reasons we don’t have a lot of bank lending back in the system today — quite apart for the mortgage overhang — is that people aren’t quite sure yet what their capital requirements will be, what the cost of compliance will be… so on balance I like what I know about the bill, on balance I don’t like anything that is maintaining uncertainty among financial institutions that appear on paper to have $1.8 trillion in cash uncommitted to loans and yet the people are afraid to start loaning because of uncertainties about what the compliance cost will be.”
Not sure if the large banking institutions would agree with the former President when he went on to say even if the cost of compliance ate up a third of that figure that would be OK because at least the remainder could be loaned out.
He also said that bank lending would be preferable to a second stimulus package that has been floated.
Clinton estimated that the hole dug by the financial collapse was roughly $3 trillion, which would be quickly offset if available funds were unleashed on the economy. “If the banks have $1.8 trillion dollars and they all behave like old fashioned mom and pop community banks, in theory they have the capacity to loan $18 trillion tomorrow and this whole thing would be over in a nanosecond.”
Perhaps that is overly simplistic but it should give pause to those folks who believe that legislative gridlock is a good thing. Remember as passing financial reform became more and more difficult this year, more of the details were pushed to regulators, (though CFTC Chairman Gary Gensler says he has clear direction) . Many insiders told us that while any major legislation leaves a lot to the rule writing process that this was doubly so in the case of Dodd-Frank.
Clinton added, “I think the most important thing the Federal Government could do right now is to get these regulations out, give the banks some certainty. They don’t even have to like everything, just tell them what the deal is and lets calculate the cost and get the show on the road. Every week that goes by is a week that loans aren’t made, businesses aren’t saved, new businesses aren’t started and we are not expanding.”