
Retired House Democrat Barney Frank is the last person on the planet you'd expect to criticize implementation of the 2010 law that bears his name. But there he was at a recent event hosted by the Clearing House trade group, suggesting that regulators ought to focus on banks instead of mutual-fund companies.
According
to the Clearing House, Mr. Frank said he did not favor designating such
large asset managers as BlackRock or Fidelity as "systemically
important" and that this was not the intent of his law. He added that
"overloading the circuits isn't a good idea" and said that the Financial
Stability Oversight Council created by Dodd-Frank
"has enough to do regulating the institutions that are clearly meant to
be covered—the large banks." Mr. Frank told the crowd, "I have not seen
the argument made yet to cover" the "very plain-vanilla asset
managers."
We haven't either. An asset manager decides where to invest money on
behalf of clients. The profits or losses on these investments accrue to
the clients, not the manager. A market decline shouldn't threaten an
asset manager or the larger financial system. This is different from a
bank, which loans the money it collects from depositors, who expect to
be able to withdraw every penny they entrust to the bank. Taxpayers are
on the hook to make sure promises are kept on insured bank deposits.
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