The Dodd-Frank Wall Street Reform and Consumer Protection Act was passed in 2010 as Congress’ response to the 2007-2009 financial crisis, with a goal of reducing financial risks and creating safeguards against future economic collapses.

Yet on the eve of the bill’s fifth anniversary, even more assets are in the hands of big banks and little has been done to ensure consumers still have access to the kinds of financial products they actually want.

Having established new government agencies, such as the Consumer Financial Protection Bureau and the Financial Stability Oversight Council, one of Dodd-Frank’s initial purposes was to monitor the performance of big banks deemed vital to the performance of the U.S. economy. Some claimed these organizations were “too big to fail”.

Five years later, the law’s effectiveness in this regard has been a demonstrable failure, as some now question whether those same institutions have simply become “too big to regulate.”

Led by Chairman Jeb Hensarling, R-Texas, the House Financial Services Committee yesterday held a hearing yesterday on the status of U.S. financial markets five years after Dodd-Frank. Hensarling’s opening statement took a strong stance on the matter — Dodd-Frank has seemingly been a catalyst, not an inhibitor, of financial instability.

What is undebatable is the fact that since the passage of Dodd-Frank, the big banks are now bigger; the small banks are now fewer. In other words, even more banking assets are now concentrated in the so-called ‘Too Big to Fail’ firms. Pray tell, how does this improve financial stability?

Hensarling expressed similar sentiments during a June 9 conversation with the Wall Street Journal’s Mary Kissel, characterizing the act as an “avalanche of regulation” similar to Obamacare and oppressive regulatory agencies like the Environmental Protection Agency. He points to this regulatory burden as one of the reasons the biggest banks have been able to grow disproportionately large, while smaller institutions struggle with enormous compliance burdens.

In May, the Mercatus Center’s Margaret Pierce published a critique laying out the law’s principal problem – its failure to recognize that regulators, not just markets, can also fail:

This macroprudential approach places too much confidence in the regulators to always get things right, and it inhibits market mechanisms from responding organically to problems as they arise. The last crisis taught us that regulators do not always get things right, and markets absorbed in regulatory compliance are very poor at disciplining themselves. The result is a less stable financial system.

During Thursday’s hearing, the committee heard testimony from, among others, Pierce’s Mercatus Center colleague Todd Zywicki and Mark Calabria of the Cato Institute. Zywicki explained how the bill has resulted in higher prices and limited consumer choice through its inherent disregard for consumer interests. Among its specific effects has been a marked decrease in the percentage of banks offering free checking accounts, as exhibited by the graphic below.

banks

Calabria noted that key ingredients of the financial crisis were exceptionally loose monetary policy and supply rigidities in U.S. property markets, things that Dodd-Frank simply did nothing to address. “It is not enough to just ‘do something’ – we must do the correct things,” Calabria said.

Whether the Dodd-Frank Act is reformed, replaced or phased out, it will be crucial for the future of the U.S economy to address its significant flaws. Overregulating the financial markets has proven through extensive failures to have been nothing but disastrous.