Banks, hedge funds, financial markets — they all have a bad reputation these days. Some of this is merited. It’s hard to forget the 2008 financial crisis: a calamity which some Wall Streeters helped to facilitate. Taxpayers rightly resented having to pay for the rescue of some of America’s biggest financial houses.

It’s a myth, however, that America’s banks operated in a regulation-free environment before 2008. Since 1900, the financial sector has become one of the most regulated parts of America’s economy. Even before the 2,300 page Dodd-Frank Act became law in 2010, the financial industry was already subject to thousands of regulations.

Today, no less than 11 federal agencies are charged with some responsibility for supervising the financial system. To this, you can add scores of financial authorities at the state-level as well as many industry-sponsored, self-governing associations. This has created a labyrinth of intersecting jurisdictions and constantly-changing standards. Even specialists find it difficult to navigate.

Throughout the 2016 election campaign, most Americans heard Donald Trump slamming big banks. Fewer noticed, however, that part of Trump’s stated economic-agenda involves substantially deregulating the financial sector.

Excessive regulation makes it harder for smaller banks to compete. That often puts access to capital out of reach for many people.

For the moment, the details remain vague. But what is clear is that winning the argument for financial deregulation will require increased understanding of how excessive financial regulation actually hurts the less-well off.

Be Careful What You Wish For

Few people have an in-principle objection to governments having some role in defining and enforcing safeguards for consumers and investors. Yet regulation often has unintended consequences, including in the financial sector.

Consider, for instance, the costs associated with meeting the ever-growing demands of regulatory compliance. Such costs are more easily borne by large banks than smaller-sized institutions such as community banks. The result is that excessive regulation makes it harder for smaller banks to compete. That often puts access to capital out of reach for many people.

Excessive financial regulation also weighs the scales against first-time entrepreneurs and start-up businesses. Unlike large, established companies, the ideas-rich but capital-poor entrepreneur often doesn’t have the resources to hire lawyers and accountants to help him navigate a complicated regulatory environment as he seek to gain access to capital.

If start-ups and entrepreneurs can’t get the capital needed to start a business, it’s unlikely that that business will ever take off in the first place. This means that the jobs and wealth which might have been created will never see the light of day.

But perhaps the most harm which excessive financial regulation inflicts upon ordinary people concerns the ways in which such regulations can — and have — contributed to financial meltdowns. Such crises are far more likely to hurt those on the lower-side of the economic scale than the already-wealthy.

Hazardous For Your Financial Health

 A great deal of imprudent behavior by some people working in the financial industry contributed to the 2008 crisis. One example was excessive reliance by bankers on mathematical modeling of levels of risk. A common post-2008 banker’s lament was, “But the models told me that the risk was manageable!”

If there’s anything we should have learned from the financial crisis, it’s that mathematical models have their limits in terms of pricing and leveraging risk. Many important pieces of information, not to mention features of human nature, can’t be mathematically modeled.

Less well-understood, however, are the ways in which excessive regulation can facilitate just as much excessive risk-taking by banks as an over-reliance on modeling. A good example of this is the phenomena of “moral hazard.”

The origins of this term don’t lie in economics, philosophy or theology. It was first used in the seventeenth century, but achieved widespread use in the nineteenth-century insurance industry. Insurers deployed the expression to describe the point at which insuring people might embolden them to take excessive risks because they calculate that the costs of failure will be covered by insurance.

The greater the degree of protection accorded by regulation to banks, the more likely it is that banks will engage in irresponsible lending over time.

Today, moral hazard is used to describe policies and regulations which encourage individuals and businesses to make excessively risky choices — usually with assets entrusted to them by others  —because they safely assume they won’t pick up the bill for any failure. Heads, I win. Tails, taxpayers lose.

Much financial regulation, before and after 2008, has been concerned with preventing or minimizing the effects of bank failures. The reason is that the ramifications of a bank’s collapse tend to be more systemic upon the rest of the economy than the failure of other businesses.

Indeed, the bigger the bank, the more likely they are to be provided liquidity by governments if they are ever at risk of insolvency: no matter how foolish or irresponsible their behavior. The problem is that the greater the degree of regulatory protection accorded to banks, the more likely it is that banks will engage in irresponsible lending over time.

So who pays the price when moral hazard eventually results in a very large bank taking on far too much risk and finds itself unable to cover its losses? As we learned in 2008, it’s rarely the boards and senior management of such institutions. They’re usually protected by limited liability laws. Instead, millions of taxpayers pay the bill.

At this point, it’s unclear how the incoming Trump administration proposes to free up one of America’s most highly-regulated industries: an industry which, as envisaged by its original architect, Alexander Hamilton, is responsible for America enjoying all the blessings associated with a capital-intensive economy.

Resistance to financial deregulation, however, is guaranteed — and not just from the political left but also those financial players who don’t like competition. But showing how heavy regulation protects established financial institutions at the expense of the less-wealthy and less-powerful is critical to shifting opinion in favor of changing the status quo.

The only alternative is more of the same — which, for an economy that aspires to be dynamic, is no alternative at all.

Samuel Gregg is Research Director at the Acton Institute and author of For God and Profit: How Banking and Finance Can Serve the Common Good (2016).