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As Rules Squeeze the Financial Industry, Consumers Are Left with Fewer Choices

August 10, 2015 in Economics

By Richard W. Rahn


Richard W. Rahn

What is the purpose of financial regulation? Advocates of more and more financial regulation say it is necessary to protect the consumer against greedy bankers and other financial professionals and institutions. But what if excessive financial regulation is actually reducing consumer choice and increasing the cost of banking, saving and investing well beyond the point of any benefits?

Most people understand that competition is good in that it results in better products at lower cost and more choice. Yet the government has been destroying financial market competition, increasing consumer cost and reducing choice. In 1921, the United States had 31,000 commercial banks, and now we have only 5,500 for three times the population. Part of the reason for the decline in the number of banks is due to natural market forces, such as mergers, to gain the benefits of economies of scale and to allow banks to have nationwide branch banking, both of which benefit consumers. But another major reason for the reduction in the number of banks, particularly in recent years, has been the cost of bank regulation, which puts small and community banks at a severe competitive disadvantage. In fact, no new banks have been charted since the beginning of the Obama administration. The massive increase in regulatory costs has resulted in fewer and more costly bank services for the consumer.

Regulations on banking and the rest of the financial industry are developed and enforced by the Federal Reserve, the Office of the Comptroller of the Currency, the Treasury Department, the Internal Revenue Service, the Justice Department, and now even the Department of Labor. Officials in the Obama administration at the Department of Labor are attempting a power grab with the claim (without providing supporting evidence) that financial advisers may be ripping off their customers by putting them in investment funds controlled by their own companies (which may actually be a good choice) and charging them commissions on the purchase and sales of funds and other products.

This is a real failure in fiduciary — and moral — responsibility.”

Most investors need investment advice. Professional financial advisers need considerable schooling given the complexity of financial markets, products and regulations. And, like other professionals, they need to be paid for their services. It may take a financial adviser no more time to advise and service a client with a $10 million account than a client who has a …read more

Source: OP-EDS

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