Dodd-Frank and the Age of Endless Regulation

In this age of endless regulation, it's hard to imagine that the legal and regulatory details of the law will ever truly be settled.



Welcome to the age of endless regulation.

Four years after the passage of Dodd-Frank, the sweeping financial legislation championed by President Obama and passed by congressional Democrats in the wake of the 2009 financial crisis, just half of its rules and regulations are finished. According to law firm Davis Polk & Wardwell LLP, which tracks implementation of the law, only 52 percent of its nearly 400 rulemaking requirements are complete. At the Securities and Exchange Commission (SEC), which is chiefly responsible for implementation of the law, just 44 percent of the required rules are finalized or close.

The law wasn't intended to be fully-realized immediately after passage, but even so, implementation has been slower than expected. Almost half of the 280 rulemaking deadlines that have passed so far have been blown, and there's no sign that completion of the process is on the horizon. "To pretend we can process the rules in a thoughtful way, in a period of a year or two, or even five or 10, I think is crazy," Republican SEC member Daniel Gallagher told The Wall Street Journal. Here's to the infinite implementation process. Four more years! And then, perhaps, four more years after that.

By its third anniversary last summer, the 848-page law had generated nearly 14,000 pages of new regulations, with who knows how many more in the lifetimes of rule-writing to come. Congress certainly has no idea, which is why the legislators who backed the bill punted most of its actual design to regulators in the first place. The idea was for Congress to set the vision, and leave the details to the bureaucrats, who had more specific knowledge of how the financial system worked.

In other words, legislators in Congress passed a massive, sweeping overhaul—"the largest change to the financial sector's regulation since the Great Depression," as a Davis Polk associate told CNN—of the entire financial sector that they themselves did not understand.

Congress did not pass a law regulating the financial sector so much as write a law instructing others—in this case, armies of unelected federal regulators—to write many, many more laws regulating the financial sector. And regulators have responded as regulators do, by regulating…and regulating and regulating, to the tune of 14,000 pages and counting, with years more rules and rule-writing to come.

Given the scale and scope of the rules so far, and the countless hours of dithering and debate surrounding their creation, it is hard to argue that Congress even had a meaningful vision for how the law would function and what exactly it would do. Yes, in theory the law's backers imagined—or at least argued—that it would stabilize the financial sector, insulating it from future crises. But that is a wish, not a mechanism. It's an imagined state of being, not a practical path to get there.

Even the law's less grandiose consumer-protection aims resulted in bureaucratic sprawl in the form of the Consumer Financial Protection Bureau. Between 2012 and 2013, the agency grew from 970 employees to 1,335. In 2013, the agency's budget hit $518 million—more than triple what it spent just two years prior.

Dodd-Frank is not a law that was passed to do any specific thing, or even several specific things. It regulates all manner of minutiae: the particulars of debit card surcharges, mortgage qualification rules, bank capital requirements, energy company finances, and even disclosures on the corporate use of tungsten and other minerals from the Congo. In practice, it looks more like a law designed to do anything, and perhaps everything. Judging by the results, it's hard not to conclude that the legislators behind the law did not really know what it was supposed to do at all.

And so regulators will figure it out for them, across years and tens of thousands of pages of obscure regulations that require masses of lawyers to interpret, and that almost no one understands in totality.

Or at least they will attempt to do so. In this age of endless regulation, it's hard to imagine that the legal and regulatory details of the law will ever truly be settled. Regulators and administrative officials will use its power to serve their ends, whatever they are at the time, which may be what Congress intended after all.