Inside Financial Services

A Failure Even On Its Own Terms

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Might we take time out from watching Obamacare implode to ask how the implementation of the Obama administration’s other signature legislative achievement, the Dodd-Frank financial reform law, is rolling along?

You don’t want to know. Davis Polk & Wardwell has been keeping track of things, and reports the following:

– Of the law’s 280 required rulemaking deadlines that have come and gone so far, only 170, or 61%, have been missed.

– Of the total of 398 rules the law requires, 162, or 41%, have been met with finalized rules. Another 121 (30%) have been proposed but not yet finalized. Fully 115 (29%) have not even been drafted yet.

Less-than-stellar progress, in other words. As a reminder, Dodd-Frank was signed into law over three years ago. Reasonable people can disagree whether the law is a wise piece of legislation or not. Regardless, here we are, three years later, and bureaucrats haven’t even managed to get halfway through writing the rules Dodd-Frank mandates. The main reason for the holdup, of course, is the sheer size of the project. Dodd-Frank runs to 850 pages, and aspires to micro-regulate vast swaths of one of the country’s biggest and most consequential industries. So there’s mandated debit-card price-capping to be implemented here, certified subprime-friendly qualified mortgages to be designed there, and the introduction of sweeping trading controls on depositary institutions over there.

It never ends. At some point, though, the logistics of the real world collides with the towering progressive aspirations embodied in the law–and as a result, nothing gets done at all. That’s what’s happening with Dodd-Frank now. It’s not that the regulatory mechanisms the law put in place are running haltingly, or in ways the law’s authors didn’t intend. Rather, the task before the rule writers is so immense that, for years now, a lot of the mechanisms still aren’t working at all.

This is no way to regulate an industry. While the rule-writers scribble away in Washington, the financial services providers that will have to live under the rules once they’re eventually finalized are more or less frozen in place. How is that a good idea-for consumers or providers?

It’s no secret that I think Dodd-Frank is a bad idea that won’t do much to help prevent the next financial crisis when (when!) it arrives. But the law as it’s being implemented is turning out to be even worse than I expected. Congress in its wisdom has passed legislation so big and complex that, for all practical purposes, it’s beyond the ability of the federal government to carry out. In the meantime, large parts of the financial services industry can only sit and wait. There’s got to be a better way.

What do you think? Let me know!

7 Responses to “A Failure Even On Its Own Terms”

  1. Ken Greenberg

    They have enough rules already. Roanoke hit it on the head if you must have more. I can’t imagine Chase is rushing to lose another $6 billion so regulators can slap them with $18 billion in fines. And guess what? They did that fining under current rules. Alas: it will only run the Federal government for less than two days. The $1.2 billion in insider trading fines against SAC will only run the government for about 1.5 hours. Odd, since Congress can do insider trading with no penalties or violations. I’d like to see the Federal government on GAAP and abide by all the rules they impose on us. It’s tough running a small biz or a bank these days.
    What to do next? When they’re done fining JPM Chase and BofA… they’re coming for the rest of us!

  2. c smith

    “The main reason for the holdup, of course, is the sheer size of the project.”

    Ah, no. The main reason for the holdup of implementation of Dodd Frank is that the bank lobbyists are doing everything they can to throw sand in the gears because some of their most profitable (and riskiest) businesses are threatened. Take HR 992, which just passed and basically gutted the provisions of Dodd Frank which were designed to put a firewall between deposit taking and swaps trading. Yes sir, we want banks to gamble in the swaps market with funds guaranteed by taxpayers! What a load of crap.

  3. Bubba27

    Did you market cap or equal weight the rules that you reference? Not all rules have the same import and if that is correct than your more than cursory analysis by numbers alone is misleadingly deficient and without meaningful nutritional value.

  4. FinancialWorldCritic

    Does the “real world” mean letting the financial institutions get away with whatever they choose regardless of the consequenses? I don’t think so. The bankers, brokers, investment bankers, hedge fund managers etc. have had their way long enough. If it takes time to implement all of Dodd-Frank so be it. Delays are not from the law itself but from those in Washington who are in the pockets of the financial industry.

  5. roanoke

    Just put Glass- Steagall and personal liability back in place and get on with it.

  6. Dcam

    Read Scheizer’s book “EXTORTION” about how our “leaders” are screwing us to make themselves campaign donations and become wealthy fiefdoms.

    We get idiots that write all this stuff then go out into the real world to help us comply for millions!

    They – Congress, the administration and the favored friends, are exempted – we are not!

    They get to sell services for campaign moneys – we go to prison.

    no wonder we are going downhill!

  7. Dcam

    WE retire from business and we are said to “cash out”

    Senators, Representatives, Presidents and rules writers retire from government are said to be “Cashing In”

    they head to lobbyist firms to help the poor slugs trying to keep real businesses running by interpreting the laws they wrote with the help of their friends remaining in government.

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