Banks’ Dodd-Frank Costs vs. Earnings on Reserves

Abstract

The Dodd-Frank Act has imposed substantial costs on large commercial banks. This study analyzes the net financial impact on large banks from some of the quantifiable costs of the Act versus their earnings on excess reserves, which began in 2008. The limitations of this analysis include the costs of many provisions of Dodd-Frank that cannot be quantified and the assumptions that are necessary to develop the estimates. Major revisions to Dodd-Frank that would reduce bank costs are likely to result from the Treasury and financial regulators’ studies ordered by the Trump Administration and potential enactment of The Financial Choice Act of 2017 under consideration by the Congress. As a percentage of assets, the largest eight banks earned considerably less from interest on excess reserves than their quantifiable costs to satisfy Dodd-Frank. Treasury Secretary Mnuchin has suggested reducing regulations for banks with assets below $250 billion. The banks with assets above $250 billion required the greatest amount of funds from the TARP program and they offer the greatest risks to the US and global economies.