Long on paper but also long on loopholes, the Dodd-Frank Wall Street Reform and Consumer Protection Act adopted by congressional Democrats a year ago is now in the hands of regulators charged with implementing the sprawling legislation that was more than 2,000 pages in length.

 

But competing federal agencies are not in agreement about how to enforce all of the law’s provisions, which is just one of challenges facing the effort to reign in powerful banks.

 

For example, one provision of the bill would forbid banks from making investments on their own behalf rather than for clients. Julie Williams, who has been the chief counsel of the Office of the Comptroller of the Currency (OCC) since 1994, wants to insert exemptions that could create loopholes big enough to allow any trade a bank wanted.

 

One of the major contributing factors to the financial crisis was that credit ratings agencies, such as Moody’s and Standard and Poor’s (S&P) gave glowing ratings to mortgage-backed securities that were really high risks. Dodd-Frank creates a regulatory structure to oversee the credit agencies. However, the Securities and Exchange Commission (SEC) is fighting regulation and has indefinitely tabled implementing a provision of the law that is meant to hold the agencies legally responsible for their ratings.

 

“The decisions that are coming down are not promising,” Ted Kaufman, the former Democratic senator from Delaware who worked on the legislation, told ProPublica. “The regulators are not making the hard decisions. If the Congress would not make the hard decisions, how can you expect the regulators to make them?”

 

In fact, regulators in general are moving slowly. They had 26 rulemaking deadlines to meet in April…and missed every one of them. In the coming quarter, the SEC has 45 more deadlines and the Commodities Futures Trading Commission (CFTC) has 33. The chances of these rulemaking requirements being met are slim to none.

-David Wallechinsky, Noel Brinkerhoff

 

From Dodd-Frank to Dud: How Financial Reform May Be Going Wrong (by Jesse Eisinger and Jake Bernstein, ProPublica)

Dodd-Frank Rulemaking Progress Report (Davis-Polk) (pdf)