On June 15, Professor Saule Omarova testified before the U.S. Senate Committee on Banking, Housing, and Urban Affairs. The hearing was titled 'Fostering Economic Growth: Midsize, Regional, and Large Institution Perspectives.' Professor Omarova was the only academic present; all other witnesses were banking industry representatives who advocate rolling back or significantly altering the Dodd-Frank Act's post-crisis systemic risk regulatory regime.
Omarova began her testimony by emphasizing that any claims by the financial services industry that financial deregulation will "foster economic growth" must be taken with "extreme skepticism." To begin with, she observed, what the industry usually calls "growth" is not growth on the part of the real economy, but mere asset price bubbles in the secondary market. Not only are financial bubbles not real economic growth, she said, they actually harm real growth once they burst.
Omarova also took issue with two demands that she noted recur among the industry’s present requests to Congress: first, that presently “arbitrary” regulations be “tailored” on an institution-by-institution basis; and second, that the Dodd-Frank “stress testing” regime be rendered more “transparent” by revealing to banks in advance what the stress tests would be seeking.
Regarding the first demand, Omarova argued that a regime that tailored regulations specifically to particular institutions would be exceedingly expensive if not unadministrable—akin to determining voting ages, drinking ages, driving ages, and the like on a person-by-person basis. On the second demand, Omarova argued that telling her students in advance what questions would appear on their exams would render those exams, too, more “transparent,” but also would render them “absolutely useless for their purposes.”
Professor Omarova closed her written testimony with the admonishment that if Congress truly wants to foster economic growth, it should take affirmative measures to assure adequate credit flows toward infrastructure and cutting-edge industry, rather than deregulating so as to permit a return to wealth-destroying, bubble-and-bust cycles in secondary markets. To further this point, she referenced a new proposal offered by herself and Professor Robert Hockett, to establish what both call a new National Investment Authority.