Who pays for the new financial regulation bill?

Barack Obama celebrated the passage of the new financial regulation bill yesterday.  So did Chris Dodd and Barney Frank.  And why not?  It’s not as though they’ll have to pay for the new bureaucracies and regulation imposed on the American financial system.  For that matter, it won’t be the bankers, either.  Who pays? Three guesses, and the first two don’t count:

Big banks facing big drops in revenue are looking to Main Street to make up the difference.

Checking accounts, bank statements, even popping into your local bank branch could carry a hefty cost as the nation’s mega-banks scramble to offset expected damage from the sweeping financial overhaul. The uncertain future has overshadowed otherwise strong second-quarter earnings at JPMorgan Chase & Co., Citigroup Inc. and Bank of America Corp.

All three companies beat expectations this week with profitable results. Yet their stocks tumbled, helping send the wider market sharply lower Friday.

This is so basic that people inside the Beltway never learn it.  Costs imposed on businesses get passed to consumers. It doesn’t matter where those costs originate, whether they come from materials, labor, rent, taxes, or regulation.  All of those figure into the price paid by consumers for the product or service provided.

The AP focuses on the impact of the big banks, but to a certain extent, they have a competitive advantage.  Not only do they have a better economy of scale, at least some of the burden from the new regulations will be static rather than dynamic.  That means the costs will hit smaller banks and financial institutions harder, which will force them to raise prices higher than their larger competitors.  Eventually that will erode their competitive position and push more consumers into fewer institutions, which makes the entire system more vulnerable to a single point of failure.

How will consumers get hit with these new regulations?  Expect more fees on more transactions, including paying premium prices for doing business face to face with bank tellers and other employees.  Banks will start demanding higher minimum balances and start charging higher fees on accounts that don’t make the cut.  Bank of America will lose between $7 and $10 billion just on charges for debit and credit cards alone, money that will get made up by its customers somewhere.

Consumers may not pay the entire price, however, at least not directly.  If you like your local branch, better get used to the idea that it may disappear.  With billions of dollars in new costs landing with a thud on their balance sheets, we can expect to see branches close up entirely — and the jobs that exist disappear along with them.

In short, the bill will erode consumer buying power, harm retirement accounts that rely on the performance of financial institutions, and create more unemployment.  What exactly did we get in return for all of this?  An expansion of the regulatory bureaucracy that spent more time watching porn than protecting consumers the first time around.