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Comment by chrisco255 | Hacker News Reader

Presumably, a bank could follow any behavior dictated by the original Dodd-Frank Act voluntarily, if it was a good piece of legislation in the first place.

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Depends. If competitors aren't playing by the same rulebook, you're at a competitive disadvantage, and that risk could outweigh the risks you'd prefer to avoid. Regulation is needed not just to prevent risky actions, but to evenly distribute the incentive to avoid risky actions.

That's not true of banks, because as history has shown, a temporary competitive advantage as a result of riskier behavior often ends with insolvency (indeed, often is the case with business in general, but especially banking). In the case of Frank and his leadership and influential role, it stands to reason he would foresee such risks and avoid them. As of yet, though, I haven't heard any concrete argument about a specific item of the original legislation (or its current leaner form) that would have prevented Signature or SVB failures.

This makes no sense. It was a bank not a hedge fund.

Do you think banks don't need to compete? Aren't exposed to risk? They're not hedge funds, but they're still participants in various investment markets, and compete for customers on rates.

The point of legislation is to enact behavior because not everyone is a beneficent actor. If we could rely on beneficence alone, there would be no need for law.

(It should be obvious that banks do not do strictly beneficent things.)

Sure, but in this case, the co-author of one of the 21st century's most consequential banking regulations was placed in a leadership role at a bank that ended up failing.

The point of legislation like this isn't to support good actors who were going to make good choices regardless, it's to limit what bad actors will do when left to their own devices.

If everyone did the right thing on their own then we wouldn't need laws to prevent wage theft, or false advertising, or people dumping toxic chemicals in rivers people might drink out of, or murder.

I think the point is... you works think that the person who helped write the dodd Frank act, would probably follow it, even if it wasn't in law.

That sounds nice but it’s childish, like suggesting people voluntarily pay more taxes than owed. Don’t hate the player, hate the game. It’s perfectly reasonable to follow the rules of the game while believing the rules can and should be be improved. Or in Barney Frank’s case, actually doing so.

How would the original Dodd-Frank legislation have stopped Frank's own bank from failing? Or is it the case that there are always inherent risks in banking and that no legislation is sufficient to prevent all failures? Perhaps even, sometimes legislation has unintended side effects that lead to adaptive behavior in the market which then causes a shift in risk patterns that then ultimately causes a different, altogether unforeseen disaster?

He says in the article that he quickly realized the 50 billion threshold was too low and began advocating to raise it. Why would you expect him to follow the part of his legislation that he thinks is a mistake, after he succeeded at fixing that mistake?

It's also to (at least theoretically, can't comment on Dodd-Frank specifically but other areas of compliance that I've dealt with) ensure that even good actors don't stray too far. "Normalization of deviance" is a real issue, even for well-intended individuals and organizations. Having some manner to hold people to account can reduce (though certainly not eliminate) those incidences as well, or provide a way to get back on track (including, potentially, paths for self-reporting and rectifying to discourage coverups).

Only if Dodd-Frank addressed only individual bank owner risk and not systemic and depositor risk.

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