Why Dodd-Frank Favors the Big

The short answer to that question is that the law, though passed by Congress, was spelled out by bureaucrats who prefer to deal with a few large players—it’s easier and they already have a cozy relationship.

By contrast many small competitors make for an unruly market from the regulators’ point of view. Competition is better for customers but not for regulating bureaucrats.

On occasion the Securities and Exchange Commission has refused to promote competition despite a Congressional mandate. Here’s a historical case. From Ponzi Regulation:

“Bureaucrats are still around after a politician moves to other issues, loses an election or metamorphoses into a lobbyist. The sponsors of the Dodd-Frank law, Christopher Dodd and Barney Frank … left Congress long before the regulations took final shape. An army of bureaucrats decided, according to their own lights, what to make of the law.

When Congress demands that regulators promote a goal, the bureaucrats may like or not like the task. Their decisions as to how to handle a Congressional edict range from aggressive implementation to deliberate neglect. On occasion they choose to ignore a direct order from Congress. Thus an SEC Chairman decided not to do much about a 1975 law to promote competition in securities markets. He said the required measures would disrupt trading.

Was he worried about trading or about political risk to the agency? Promoting competition meant going against powerful financial interests. By disregarding the 1975 law, did regulators do what was best for securities markets or did they do what was convenient for themselves? There’s no way to answer such questions. The fact remains that the agency did not do what lawmakers wanted and members of Congress did not or could not force the issue…..”

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