A Bank CEO's View of the Dodd-Frank Act
Kenneth P. Wilcox,
Chief Executive Officer
SVB Financial Group
Santa Clara, California
Having spent my career in banking, I recognize how important sound regulation is, and agree the recent crisis exposed some fundamental gaps that needed filling.
But whether it's chocolate or regulation, it's possible to have too much of a good thing. The Dodd-Frank Act presents a sizeable risk of overindulgence.
It's hard for a bank to absorb 2,300 pages of new law. Add in hundreds of rulemakings, and you begin to see the magnitude of the challenge.
Move down a layer, and uncertainty emerges. Institutions don't know what's in store and will often have limited time to adjust to new rules, given the strict statutory deadlines.
Dig one layer deeper, and you see the risk the rules won't work as intended. The Volcker Rule, for example, could eliminate about 7% of the capital flowing into startups. The Durbin Amendment will redefine how well our payments system serves millions of consumers and businesses who rely on debit cards. Get either wrong, and the implications could be quite serious.
Dig deeper, and the risk that regulation will stifle lending and disproportionately harm smaller institutions surfaces. The Dodd-Frank Act will increase compliance and deposit costs, eliminate some types of income, and force banks to hold artificially high capital levels. It's too early to tell how this will reshape the sector—but I expect to see new fees, less (or more expensive) credit, less innovation, and a change in the competitive landscape.
But my biggest concern lies at the law's core. Risk-taking is essential: without risk, there is no reward. We need to stop excessive risk-taking. But we can't—and shouldn't—eliminate risk-taking altogether.
I respect the professionals at the Federal Reserve. I hope they think critically as they implement the Dodd-Frank Act. If they focus on real problems; find a balance between too little and too much regulation; take time to think through the consequences of new rules; and carefully distinguish irresponsible from intelligent risk taking, I believe we can provide the intended benefits of the Dodd-Frank Act without doing too much harm. But it will take every ounce of their intelligence and commitment to avoid the trap of "too much."