Last Thursday President Obama signed into law the Dodd-Frank financial regulatory reform legislation.
Hailed as the most sweeping revision of U.S. financial markets since the Great Depression and primarily aimed at institutions, the measure contains some provisions that directly benefit consumers and individual investors.
Modest tightening in mortgage lending standards, increased disclosure and transparency requirements and enhanced SEC oversight are all praiseworthy.
However, the law as adopted is short on specifics and instead creates a framework of mandates directing various supervisory agencies to fill in the blanks with a plethora of new rules and regulations.
An analysis by the law firm of Davis Polk & Wardwell finds that the 2,300-page act requires 67 separate studies and 243 rulemakings over the next 18 months. While the ultimate effect of the measure will not be fully evident for some time, one implication is already clear: Consumers will
foot much of the bill.
Big banks expect these new regulations to squeeze their profit margins and force them to hold more capital. To help recoup the lost profits, banks already are rolling out a slew of new fees and axing or charging for previously complimentary services.
Say good-bye to free checking accounts, unless you are willing to eschew paper statements and promise not to speak to a human teller. Expect to fork over bigger fees for routine transactions like cashier's checks and wire transfers, and to pay more for car loans, lines of credit and ATM fees.
Jamie Dimon, CEO of JP Morgan, highlighted his bank's intention to pass along the additional costs to customers: "If you're a restaurant and you can't charge for the soda, you're going to charge more for the burger. ... Over time, it will all be re-priced into the business."
Another channel by which consumers will shoulder the cost is less direct. Until some clarity emerges from the regulatory blitz ahead, U.S. corporations remain extremely reluctant to deploy their substantial cash balances in productive capital investments and are reticent to ramp up hiring.
Uncertainty will further impede the labor market recovery and depress real wages, imposing an implicit cost on consumers in the form of lower disposable income. And, of course, the direct cost of a major expansion in government regulatory bureaucracy will fall on taxpayers.
Consumers will see some benefits, but there is still no free lunch.
Get answers to financial questions on Wednesdays from our columnists who work in the financial services industry. Chris Hopkins is vice president, investments, at Barnett & Co. Inc. Submit questions to his attention by writing to Business Editor John Vass Jr., Chattanooga Times Free Press, P.O. Box 1447, Chattanooga, TN 37401-1447, or by e-mailing him at jvass@timesfreepress.com.