Big banks are now defending the 2010 Dodd-Frank law.

A recent editorial in the The Wall Street Journal said that: "JPMorgan's Jamie Dimon and Lloyd Blankfein of Goldman Sachs have urged against repeal, and other bank CEOs are also suggesting policy small-ball rather than wholesale reform."

Why should these banking leaders want change?

Larger banks adjusted a long time ago to the most recent comprehensive banking legislation in recent history. 

As far as bigger banks were concerned, the Dodd-Frank law was out-of-date by the time it was passed.

The bigger banks don't stand still. Of course, they objected to the new laws and made a lot of noise about how the industry was being discriminated against. Yet these bigger banks had the knowledge and resources to leap ahead of the legislation to regulate them.

That said, one byproduct of the legislation was that many smaller banks were hurt by it. Dodd-Frank created 22,000 pages of regulations. A number of the smaller banks had to divert resources to address newly created compliance issues. 

In the seven years following the ending of the Great Recession, the FDIC reported that the banking system lost between 100 and 150 commercial banks per year. This does not include the commercial banks that were lost during the Great Recession. From 2010 to 2014, the number of community banks declined 14%

In addition, tighter regulations prevented new banks from entering into the commercial banking industry.

The Wall Street Journal editorial cited Blankfein as saying that it was now in Goldman Sachs's interest to keep the Dodd-Frank laws in place because "regulatory costs have helped raise the barriers to entry in his business 'higher than at any other time in modern history.'"

This was also to the benefit of Goldman Sachs in the international area because as the editorial said, "'only a handful of players' will likely be able 'to effectively compete on a global basis.'"

In other words, although in the beginning, the changes in the banking law were costly to Goldman Sachs, JPMorgan Chase, Bank of America, Wells Fargo and other big banks, they adjusted to bypass the new legislation. 

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But the Dodd-Frank law inadvertently may have led to the demise of a number of institutions and made others less competitive.

Even the smaller banks that still survive realize that there might be a competitive advantage for them when facing the new forms of financing they are facing coming from "finance companies and tech start-ups operating outside of traditional banking."

The Wall Street Journal editorial cited the Nobel prize-winning economist George Stigler, who wrote about so-called "regulatory capture," the process by which an industry takes over the regulation imposed on it to make the regulation work for the benefit of the industry instead of working for the benefit of society.

"Regulatory capture" is often described in terms of how organizations make use of the regulations imposed on an industry, but we have also seen how regulation is almost always out-of-date by the time it takes effect practice, at least for the larger institutions.

This is because the legislations is always aimed at fighting the last war while the bigger institutions are preparing themselves for the future.

What is sad is that there is a cost to the "innovation" that the banks are producing to beat the laws being constructed by the legislation. One wonders where we would be if these innovation costs went into producing more efficient, secure banking practices, rather than in finding ways to bypass laws.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.