WASHINGTON – Two and a half years after the U.S. introduced the most significant overhaul to financial regulation in a generation, many of the rules have yet to be completed. Meanwhile, regulators, lawmakers, and the private sector continue to be at odds over the finalized regulations.
After the financial crisis of 2008, lawmakers sought to reduce the chances of another economic crisis by overhauling financial rules and creating new regulatory bodies to protect consumers from abusive lending and mortgage practices. After several months of negotiations between the two parties, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act in June 2010.
Dodd-Frank, which imposed the most significant reforms to the financial sector since the Glass-Steagall Act of 1933, touches almost every aspect of finance. The Act contains sixteen titles, each focusing on a major area of reform, including insurance, derivatives, and proprietary trading. One of the major goals of Dodd-Frank is to subject banks to a slew of regulations along with the possibility of breaking them up if they are deemed “too big to fail.” The law also requires that the largest financial firms build up their capital and liquidity buffers, obtain pre-approval for certain acquisitions, and place restrictions on the riskiest financial activities.
After the legislation passed, its supporters suggested that it would take roughly 12 months to finalize the rules. Two years on, those predictions seem overly optimistic.
In a report released last December, the Government Accountability Office (GAO) said financial regulators had issued only 48 percent of final rules mandated by Dodd-Frank and have missed deadlines for implementing 89 percent of the act’s provisions. The report noted that regulators identified the complex and interconnected nature of the numerous rules as the main reason for the delay.
For the required ban on proprietary trading, for instance, regulators issued draft rules that contained more than 750 questions for public input and produced more than 19,000 comment letters.
Regulators were supposed to finalize the details of the “Volcker Rule,” which would ban banks from proprietary trading, by July 2012. The five agencies responsible for the rule, however, have not finished writing it. The GAO said some rules have stalled as regulators wait for other agencies to craft similar regulations, while other rules require coordination among agencies and with international regulations – each one a time-consuming procedure.
Before the release of a finalized version, rules must be proposed and public comments must be read and incorporated. On top of that, regulators must also take into consideration proposed revisions to the law by legislators.
Earlier this month, Sen. Richard Shelby (R-Ala.), a senior member of the Committee on Banking, Housing, and Urban Affairs, introduced two legislative proposals that would make some changes to the Dodd-Frank financial regulation law.
The first bill corrects numerous drafting errors in the Dodd-Frank law, focusing on technical corrections of some inaccuracies and omissions in the law.
“Dodd-Frank supporters have resisted any changes for over two years,” said Shelby in a statement. “Certainly we can agree to correct purely technical errors.”
Some Democrats, including Sens. Tim Johnson (D-S.D.) and Mark Warner (D-Va.), have said they would be willing to consider some technical fixes to the financial regulation law.
The second bill, titled the Financial Regulatory Responsibility Act of 2013, holds financial regulators accountable for rigorous, consistent economic analysis on every new rule they propose. The financial regulation bill mandates that if a rule’s cost outweighs its benefits, regulators cannot push the regulation forward.
Shelby introduced similar versions of the two bills in the previous Congress – one in 2011 and the other one at the end of 2012. Both of the bills did not make it out of the Senate Banking Committee.
As in Shelby’s previous attempts in changing Dodd-Frank, the Chamber of Commerce has come out in support of the legislation.
“The use of cost benefit analysis in rulemaking is a significant issue of public policy,” the Chamber’s R. Bruce Josten wrote in a statement.