Dodd-Frank five years later: failure or success?

Writing in Fortune, liberal economist Dean Baker claims that the financial regulations enacted in reaction to the financial crisis of 2009, is a success:

First and foremost the complaint was that the bill would make it more difficult for businesses to raise capital. This argument has not held up well in the last five years. Certainly the businesses that can raise money in the stock market have little basis for complaint. With price to earnings ratios in the stock market at their highest level since the tech bubble, these companies can raise money at extraordinarily low prices.

This is true for bonds as well, as we see both very low interest rates and unusually low spreads between the interest rate paid by even relatively high risk companies and Treasury bonds. In fact, these spreads are so low that Federal Reserve Chair Janet Yellen saw fit to warn markets about a bubble in the high yield market last summer. And for smaller businesses, according to the Federal Reserve Board’s data, banks made an average of more than $230 billion in new loans in the last three years, up from an average of just over $200 billion in the 3 years before the crash.

We also had warnings that the Consumer Financial Protection Bureau (CFPB) — the creation of which was authorized by Dodd-Frank — was going to impose such high costs through rules and regulations that it would sharply limit access to consumer credit. This also does not appear to be happening. Consumer credit overall is up by almost a third since the passage of Dodd-Frank. In fact, the news in the consumer credit market is in the abuses in the subprime auto loan market, a market not covered by the CFPB thanks to lobbying by the auto dealers.

Let's not forget that the crisis resulted from subprime lending on overpriced real estate. "Of the 19.2 million subprime/low quality loans on the books of government agencies in 2008, 12 million were held or guaranteed by Fannie and Freddie" (The Atlantic). Now that the US government owns all of Fannie and Freddie, you might think they would be quite conservative. You'd be wrong: "Fannie Mae and Freddie Mac unveil mortgages with 3% down payment" (LA Times).

Meanwhile the facts show that it's gotten more difficult for small businesses to get credit (Bloomberg):

The number and value of small loans has shrunk substantially over the past five years. Federal Deposit Insurance Corporation Call Report data show that both the number of and the inflation-adjusted value of non-farm, non-residential loans of up to $1 million—a common proxy for small business loans—declined by 27 percent fromk June 2008 to June 2013.

Twenty-five percent of respondents to the third quarter 2013 Wells Fargo/Gallup Small Business Index, a survey (PDF) of approximately 600 small business owners conducted every three months by Gallup on behalf of Wells Fargo, said that obtaining credit was difficult over the past 12 months, while 22 percent said it was easy. In the third quarter of 2008, those percentages were 14 percent and 41 percent, respectively.

The WSJ goes further:

Dodd-Frank was supposedly aimed at Wall Street, but it hit Main Street hard. Community financial institutions, which make the bulk of small business loans, are overwhelmed by the law’s complexity. Government figures indicate that the country is losing on average one community bank or credit union a day. Before Dodd-Frank, 75% of banks offered free checking. Two years after it passed, only 39% did so—a trend various scholars have attributed to Dodd-Frank’s “Durbin amendment,” which imposed price controls on the fee paid by retailers when consumers use a debit card. Bank fees have also increased due to Dodd-Frank, leading to a rise of the unbanked and underbanked among low- and moderate-income Americans. [...]

[...] Adhering to the new rules takes time and money, reducing the resources that bankers have to make loans. As Greg Ohlendorf, president and chief executive officer of First Community Bank and Trust, told Congress, “This compliance burden is a distraction from our small business lending. Every hour I spend on compliance is an hour that could be spent with a small business customer.”

Because many small business owners borrow personally to finance their businesses, they have also been caught up policy makers’ efforts to increase consumer financial protections. [... New regulations have led] credit issuers to increase the interest rate spread on their loans, according to an additional Federal Reserve report.

Higher interest rates necessarily mean that small companies need to pay more to borrow funds. Second, fewer small businesses can get loans. The inability to re-price loans has made the high risk segment of the credit-card market less profitable to lenders, causing many of them to reduce their participation in that part of the market. As a result, a sizable minority of high-risk small business borrowers that once obtained credit-card loans can no longer get them.

Sounds like a fail to me.