Sanders is Wrong - There was NO Wall Street Deregulation

Bernie Sanders rails against “millionaires and billionaires,” often targeting a symbol of US wealth: Wall Street. Bernie charges “Wall Street greed” with causing the past financial crisis, and blames supposed deregulation of the financial industry for enabling it.

Most of us who follow politics and witness the excessive burden our government places on businesses hear such charges and wonder when the government deregulated anything.

In fact, if we actually look at the regulatory environment of the financial industry, the trend is towards more regulation, not less.

AsJared Meyerwrites at the Manhattan Institute:

In the years leading up to the financial crisis, the number of Code of Federal Regulation restrictions on the finance and insurance industry increased 11 percent, and this level increased 15 percent during George W. Bush’s presidency. In 1997, there were 23,422 restrictions on the industry, a level that increased to 26,235 by 2008. In other words, on the eve of the crash, there were over 26,000 words such as “must,” “cannot,” or “shall” that governed the conduct of finance and insurance companies.

Advertisement - story continues below

Looking at even more specific data on federal restrictions shows the same story—financial deregulation never happened. Researchers at the Mercatus Center at George Mason University found that “between 1997 and 2008 the number of financial regulatory restrictions in the Code of Federal Regulations (CFR) rose from approximately 40,286 restrictions to 47,494—an increase of 17.9 percent. Regulatory restrictions in Title 12 of the CFR—which regulates banking—increased 18.2 percent while the number of restrictions in Title 17—which regulates commodity futures and securities markets—increased 17.4 percent.”

In the face of these numbers, there does not seem to be much evidence to support Sanders’ pet theory that repealing Glass-Steagall and passing the Commodity Futures Modernization Act led to extensive financial deregulation. New financial regulations from the Sarbanes-Oxley Act and the Patriot Act, along with steadily accumulating regulations from older laws such as the Community Reinvestment Act of 1977, more than made up for any deregulation efforts.

Meyer continues to point out that Wall Street does in fact contribute heavily to politicians, but it’s rarely to promote deregulation. Liberals forget that regulation can cut both ways. While financial regulation poses a cost to all financial institutions, it disproportionately affects smaller financial institutions.

Thanks to regulations like Dodd-Frank, one in four local banks have vanished since the great recession, while only three have been chartered. This puts smaller banks at a disadvantage as they face higher barriers to entry and ongoing costs as a percentage of revenue than the financial giants.

The big banks have gotten bigger since the recession began, but you can thank regulation, not deregulation for that.