As the house spars over a bill to fix the 2010 Dodd-Frank financial regulation law, it’s worth reminding ourselves about the nature of regulation.
Blogger Josh Brown, the self-called “Reformed Broker” of Twitter, had an interesting post earlier this summer. Here’s the best part:
One other thing that no one is saying but I will – the banks should thank their lucky stars for regulation. It’s the only thing keeping them safe from technology companies coming in and threatening their ability to exist. Google, Apple, Amazon and Facebook have zero interest in getting involved with a highly regulated industry like banking – at least for the time being. That’s a good thing, because Apple Bank or Google Lend would be a death sentence for the marble lobby crowd. Can you imagine if Jeff Bezos could set his sights on checking and savings accounts without having to worry about the SEC or the New York Federal Reserve or the FDIC or the CFPB or the OCC, etc etc etc?
But Bezos can’t just waltz in and upend the economics of the banking sector. They should count their blessings that he can’t.
Google and Facebook, with their billions of users, can’t do it either, regardless of the fact that they’ve got an incredibly deep pool of data on every individual bank account holder in the world. Turning on a banking feature tailored to how each user typically spends, vacations, communicates and shops would be a huge opportunity for these giants. And they have more cash to invest than there are currently investable ideas! Hundreds of billions sitting idle around the world, and virtually none of it being deployed toward the banking sector.
Regulation acts as a barrier to entry. The banks know this, very well.
Goldman Sachs’ Lloyd Blankfein said last year that Goldman is benefitting from regulation: “More intense regulatory and technology requirements have raised the barriers to entry higher than at any other time in modern history.”
Along the same lines, Jamie Dimon of JPMorgan explained that his company’s “moat” was widened by regulation.
Blogger-Broker Brown above points out how the moat keeps deep-pocketed nonbanks out. It also keeps smaller banks out.
Brown concludes:
If you’re a banking executive, it’s time to stop complaining about the only thing preventing the onslaught. It’s time to start looking at capital requirements and multiple points of oversight as what they really are: The last barriers of entry.
Dimon and Blankfein at least get this. You know who doesn’t get it? Most of the media, who continue to write as if Big Government is the sworn enemy and the only check on the power of Big Business.
Timothy P. Carney, the Washington Examiner’s senior political columnist, can be contacted at [email protected]. His column appears Tuesday and Thursday nights on washingtonexaminer.com.
