My previous post, inquiring as to the actual impact of the Dodd-Frank Act on bank capital, elicited some comments, mainly in the form of tweets, from Dodd-Frank’s defenders. Here are some of the issues raised, along with my response.
A tweet from former Schumer staffer and current law professor David Min suggests that, while my analysis referred to depositories, the real issue is consolidated bank holding companies. I don’t think the distinction matters much, because the capital requirements in Section 2(o)(1) of the Bank Holding Company Act, mirror those in Section 38 of the Federal Deposit Insurance Act, which I had discussed. In any case the fact remains that bank regulators had more than sufficient authority before Dodd-Frank to set almost any capital standards they wanted, whether for bank holding companies or their depository subsidiaries.
That said, the question remains whether bank holding companies’ capital levels have in fact gone up since Dodd-Frank. Let’s see. In 2010, the year Dodd-Frank was passed, the largest bank holding companies, on a consolidated basis, had a tier 1 leverage ratio of 9.05%. By 2015 the ratio had risen to 9.69% — a mere 64 basis points. Again, color me unimpressed. Other leverage measures for holding companies show slightly different numbers, but the magnitudes are all similar.