Washington, D.C., July 6, 2012 – Today’s weaker-than expected jobs numbers highlight the role overregulation plays in hampering job growth. As the Dodd-Frank law, which has produced scores of regulations costing the economy at least $7 billion a year, approaches its second anniversary, a new study focusing on Georgia provides further evidence that this supposed Wall Street “reform” is having devastating effects on Main Street businesses and jobs.
Price controls from Dodd-Frank’s Durbin Amendment that cap the fees paid for debit card transactions are harming the ability of Georgia’s banks and credit unions to lend to businesses and consumers, according to a new study by the Competitive Enterprise Institute for the Georgia Public Policy Foundation. This is contributing to Georgia’s record number of bank failures and hampering the state’s overall economic recovery, according to the study, “Government Barriers to Georgia’s Growth: How Dodd-Frank Price Controls Poach the Peach State’s Prosperity” by CEI’s John Berlau, senior fellow for finance and access to capital at the Competitive Enterprise Institute.
The Durbin Amendment within the Dodd-Frank Wall Street Reform and Consumer Protection Act limits the “interchange” fees that banks and credit unions charge retailers for debit card transaction. This harms Georgia in particular because many banks were already struggling to survive souring mortgage loans. Georgia, where unemployment remains around 9 percent, was especially hard hit by the recent recession and has seen more bank failures than any other state in the nation: Since 2008, the Federal Deposit Insurance Corporation has closed at least 80 of the state’s banks.
The study notes that, nationally, the Durbin Amendment alone will cost banks $8 billion in reduced revenue due to lower interchange fees, in addition to $7 billion in direct compliance costs from the rest of the Dodd-Frank Act. “And contrary to claims of proponents of these price controls, it does not look like much of this retailer windfall has been passed on to consumers,” writes Berlau. Berlau found that even the smaller Georgia community banks not subject directly to price controls may be suffering due to the price controls’ adverse effect on the financial system as a whole.
“New regulations coming out of Washington, like the Durbin Amendment, are making it even harder for the banks and credit unions to recover and do their part to kick-start the state’s economy” says Berlau. “Without healthy banks with money to lend, it will be much harder for local entrepreneurs to find the funding they need to grow their business. Georgia’s banks were already weakened by the recent, harsh recession.”
“This is a bad time for Washington to burden businesses with more regulations,” said Kelly McCutchen, president of the Georgia Public Policy Foundation. “The Durbin Amendment has already hurt small and large banks, and it isn’t helping consumers. It should be repealed.”
> View the commentary, Feds’ Price Controls on Banking Backfire on Georgia and its Economy, by John Berlau