Nearly three years after the Dodd-Frank Wall Street Reform and Consumer Protection Act was enacted, there are still vast portions of the law that have yet to be finalized in the form of regulations and implemented.
The fate of some of its most prominent features ”” including a ban on proprietary trading by depository banks and its call to end the notion of “too big to fail” ”” still hang in the balance as regulators, lawmakers and the banks themselves have sought to influence the rule-writing process.
As the July 21 anniversary of the bill”™s signing approaches, we asked John Alan James, an authority in the field of regulatory affairs and compliance, to discuss what”™s next for Dodd-Frank. James is executive director of Pace University”™s Center for Global Governance, Reporting and Regulation, and designed the school”™s Certified Compliance and Regulatory Professional certificate program.
The following are excerpts from the conversation.
Business Journal: What”™s holding up Dodd-Frank?
John Alan James: “Financial institutions have observed the third anniversary of the passage of Dodd-Frank with what can be described as an even greater degree of confusion than in the previous two years…
“At the political level, in the U.S., U.K. and E.U., the inability of legislatures ”” split by party disagreements and under heavy pressure from banking lobbyists ”” to finalize the pending legislation that would define the role of trading and its relationship to basic banking functions is creating greater doubt and confusion.
“For example, the so-called Volcker Rule (to re-establish Glass-Steagall Act) has made little if any progress. There appears to be little consensus within either party to move it forward. In addition, the federal courts have taken strong positions against regulatory agency rulings by demanding greater analyses of the ”˜cost-benefit”™ impact of their rulings.
“Differences in approaches between major regulatory agencies also create confusion as to what the future may be. The arguments between the SEC (Securities and Exchange Commission) and CFTC (U.S. Commodities Future Trading Commission) have received criticism for the Financial Stability Oversight Board. The goal of the chairman of the CFTC to expand U.S. trading rules to foreign branches of U.S. banks and foreign banks licensed to do business in the U.S. has angered both foreign governments and U.S. banks. Even some of the CFTC commissioners question both the chairman”™s goals and particularly his tactics. None of this squabbling leads to greater confidence in the financial system or its future.
“In summary, passage of the Dodd-Frank legislation created a complex and confused situation for financial institutions (especially for small and medium-size banks), regulators and the general public. Three years in, the situation has actually gotten worse and there are no bright clouds on the horizon.”
Where does the rule-writing process stand?
“The original Dodd-Frank bill, some 2,500 pages long, left the regulatory agencies to write the regulations. It is obvious that this has turned out to be a most difficult task. Since July 2010, regulatory agencies have put forth 279 suggested new regulations. Only 175 have passed and only 104 (37 percent) have become actively enforced. To add to the confusion, the agencies are less than halfway through the list of issues spelled out in the basic legislation.
“Additionally, the regulators themselves often face serious problems in finding time for training examining and enforcement staffs on the new regulations while at the same time spending most of their time with the banks in oversight activities. Relationships between examiners and compliance personnel in the banks have also become more strained because of the complexities facing both in interpreting the new regulations.”
Some members of Congress, including Rep. Jim Himes, have sought to modify portions of Dodd-Frank. What is the likely outcome of these efforts?
“Congressman Jim Himes, a Wall Street veteran, has attempted to clarify some of the issues by introducing new legislation. His major goal has been to enable institutions dealing in ”˜swaps”™ to have a clearer definition as to who is and who is not covered by the regulation of use of Federal Reserve funds.
“The daily trading market in so-called derivatives can reach the trillion-dollar mark. Oversight at best is difficult. Himes is also trying to clarify the role of the new legislation permitting smaller firms to offer shares via the Internet.
“There is little agreement between Republicans and Democrats in Congress on how to view the Dodd-Frank legislation to date, and, even greater disparity as to how to move forward. Republican calls for the ”˜repeal”™ of the entire bill are unrealistic (it includes 175 separate mandates). However, the ability to ”˜starve”™ the progress of regulators through congressional control of their budgets is slowing the progress of turning mandates into regulations. As indicated earlier, the courts have also established road blocks to stronger enforcement of the regulations.”
What”™s the likelihood of any major overhauls of Dodd-Frank by Congress?
“Both political parties are now counting on having or taking over control of Congress in the 2014 elections. Republicans dream of maintaining control of the House and even the Senate. Little or nothing of substance appears to have much chance, repeal or the implementation of new regulations, during the present congressional setup.”
