Bastiat opined, “There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.”14 The same might be said of regulators. As regulators grapple with implementation of the voluminous Dodd–Frank reform act, the unforeseen must be taken into account. The law of unintended consequences is always lurking in the shadows. To get regulatory reform right, we have a lot of “foreseeing” to do. One can envision, for example, that the potential cumulative impact of the many regulations demanded by Dodd–Frank will be to artificially raise the cost structure of the non-too-big-tofail depository institutions. Imposition of the new requirements and restrictions risks creating new economies of scale in banking generated by the costs of regulatory compliance, many of which could be fixed costs not fully proportional to bank size. To the extent that a large scale becomes necessary to absorb the regulatory cost associated with reform, Dodd–Frank could intensify the tendency toward bank consolidation, resulting in a more concentrated industry, with the largest institutions predominating even more than in the past. Such an outcome would appear to me contrary to the stated spirit and goal of the act. A more consolidated industry would only magnify the challenge of dealing with systemically important institutions and offsetting their historically elevated too-big-to-fail status.
Richard W Fisher: Containing (or restraining) systemic risk – the need to not fail on “too big to fail” Remarks by Mr Richard W Fisher, President and Chief Executive Officer of the Federal Reserve Bank of Dallas, before the Market News International Seminar, New York, 6 June 2011. *  *  *  The views expressed by the author do not necessarily reflect official positions of the Federal Reserve System. Thank you for that kind introduction. This discerning audience no doubt noted that despite being overeducated, I am not a formally trained economist. I do not have a Ph.D. in economics; those who do will correctly deduce that I am somewhat “dismal” in comprehending the arcana of “the Dismal Science.” After my undergraduate education in economics and my studies at Oxford, I took a different path. I earned an MBA and then went to Wall Street and into funds management before cashing out and taking to public service. My perspective on monetary policy and regulation is shaped less by theory and more by my experience as a market operator. I confess that in matters of monetary policy and regulation, I am often in the minority. This does not make me the least bit uncomfortable. The majority opinion is not always right; indeed, my experience as an investor has biased me to conclude that more often than not, the consensus view is the wrong view, even among the most erudite.