Barney Frank vs. Dodd-Frank -- Review & Outlook, The Wall Street Journal

Treasury moves to regulate asset managers as 'systemic risks.' 

After JP Morgan CEO Jamie Dimon warned that regulation under the Dodd-Frank law was going too far, Washington retaliated with investigations leading to a record $13 billion settlement. But how will Team Obama react now that one of the law's principal authors is questioning the regulatory expansion?

 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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