Readers know I’ve never been a fan of Dodd-Frank. It has added needless costs to the business of banking while at the same time apparently making the financial system less stable and rendering the federal regulatory bureaucracy more convoluted and unworkable than ever. I doubt very seriously that the law will do much to prevent the next financial crisis. But besides its ineffectiveness and the unintended consequences it’s brought about, Dodd-Frank is grotesque simply on account of its size: the final bill ran to 2,300 pages (Glass-Steagall was just 37) and called for the writing of fully 398 rules—many of which (the Volcker rule, for example) run hundreds of pages themselves.
This isn’t just bad law—it’s an utterly unworkable way to regulate. Davis Polk has kept a running tab on the progress of the Dodd-Frank rule-writing process. The results are appalling. In the firm’s latest report, it indicates that—four and a half years after the law went into effect—just 58% of mandated Dodd-Frank rules have been finalized. Of the rules that were supposed to be in place by a calendar deadline that’s already come and gone, 42 haven’t even been proposed yet.
This is pathetic—and not just because it’s such a grim example of federal bureaucrats not being able to get their act together. Imagine for a moment that you work in the derivatives group at a major bank. Dodd-Frank mandates that regulators come up with fully 90 new rules related to what you do. To date, just half of those rules are in place. You don’t know what the other half of the rules are going to exactly look like. So you’re effectively rule-less: flying blind, hoping that you’re building out your business in a way that will fit comfortably in a regulatory structure that’s highly uncertain and that’s taking years to take shape. At a minimum, that’s adding unnecessary cost and stunting growth. It’s no wonder that so much of the activity that Dodd-Frank covers is migrating to the non-bank sector where players can operate with a freer hand and less uncertainty. That’s a smart move for those players, I suppose but I don’t see how a relative expansion of the (largely unregulated) non-bank sector is supposed to make the system safer.
Dodd-Frank is a terrible law, made all the worse by the leaden pace with which it’s being implemented. If these new rules are so vital to protecting the financial system how is it that 4 ½ years on, just 58% of them have been adopted?
What do you think? Let me know!