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.

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Dodd-Frank Financial Regulation

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22 responses to “Dodd-Frank and the Age of Endless Regulation

  1. Dodd-Frank is the gift that keeps on giving.

    Regulators are making up what this stuff means as they go, which you can imagine results in a lot difficulty and anxiety on financial institutions parts about complying with it. Even in the best spirit of compliance, it’s easy to simply arrive at a different interpretation of the law and end up “non-compliant” once the regulators decide what their current interpretation of the ruling is.

    What’s truly crazy is the misunderstandings everywhere, even in the financial sector, about what Dodd-Frank does. Even within big banks, there are many many senior auditors who believe that Dodd-Frank protects the market from “too big to fail” banks. However, truth is – it solidifies it into an actual, defined status within the legal framework and strenthens the reliance big banks can have on being bailed out.

    1. You’re too kind. It isn’t anxiety keeping up the big financial institutions, it’s thinking of ways to bend the regulations to their own benefit. Which they will, at the expense of smaller, smarter companies and ultimately pretty much everyone else.

      1. Just SKIP THE REGULATIONS, or at least get some of your $ out from under them.

        There are several institutions in several countries that will open offshore accounts (offshore bank accounts and offshore brokerage accounts) entirely through the mail, even for Americans. The below recommended institutions are financially solid and in countries exercising sound monetary practices. All are non FATCA participants, and none have a single US location, placing them entirely out of US jurisdiction. See for yourself:

    2. All of these gyrations are because we moved away from some very basic principals. For hundreds of years we followed an Old English Common Law approach called insurable interest – you couldn’t take out insurance on something you didn’t own. But a while back Wall Street got regulators to rule that derivatives weren’t insurance, even though they pay out when something bad happens to someone else’s property.

  2. It’s ridiculous to say Congress didn’t know what this law was designed to do. It had the exact same purpose as 99% of the laws they pass, which is to eliminate free will from some industry, to put it under the government yoke. It matters little whether the law itself does that or whether it takes thousands of bureaucrats years to flesh out the details.

    The big companies know it’s a burden, but they also know they just pass it along to their customers, so what difference does it make? The big companies also know the compliance burden is the same for everybody, meaning the smaller competitors lose more profit and become easier takeover targets. Bigger profits at customer expense, fewer competitors, regulators tied in knots by the regulated business, and plenty of opportunity for yee olde revolving door twixt regulator and regulated — what’s not to like?

    1. Hmm… not sure this is a new attempt to eliminate free will… more a half hearted attempt to return to a more direct approach.

  3. and even disclosures on the corporate use of tungsten and other minerals from the Congo.

    This little bit has been a thorn in my side for the last 15 months. So much of my time has been devoted to acquiring and maintaining this, that I have to find “extra” time to do my *actual* job.…..811HvldWSo

    I was also pleased to find out that this isn’t a one-time deal either. All paperwork and accompanying documentation is re-evaluated periodically, even when nothing about the product changes. WASTE OF TIME.

    1. Don’t you know that the entire recession could have been avoided if there had only been more tungsten transparency!

  4. What does anyone expect from a bill co-authored by Barney Frank and Chris Dodd? Two the most evil and corrupt legislators in all of time and space. I suppose they had to team up one last time to give the American people a mega nut punch before retiring.

    1. Everybody is trying to rein things back in without really acknowledging the problem – we need to go back to the old definition of Insurable Interest

  5. Hey, give them a break. It’s not easy crafting regulations that reward your supporters and punish your opponents.

  6. Dodd-Frank is one of the few regulations that I don’t entirely fault the regulators. In many ways they had a complete, utter, jumble of mush to work with and in many ways, the insanity of the law was written into it. The law wasn’t intended to fix anything. It was intended to “fix” certain constituencies’ enemies, as in “I’ll fix you!”. It was passed by financial illiterates whose goal was to devise opportunities for cronyism while convincing the imbeciles who voted for them that they were “sticking it to Wall Street”.

    1. Indeed, it’s hard to write regulations to enforce a law, when what the law says is (in effect) “Regulations shall be written that make [wonderful thing] happen.”

      1. Its stress testing regime really is something out of Alice in Wonderland. If the stress test doesn’t show that you’d be dramatically harmed, that’s a sign that your stress test isn’t severe enough, so you have to develop a more severe one. But, if it shows that you’d be dramatically harmed by a stress event, you’re in trouble and have to hold capital against it. Of course, once you do that, your stress scenario is no longer severe enough.

        1. LOL WTF?

  7. “endless” until the whole thing takes a final silent shit and stops producing anything of value.

  8. I recently had a conversation with the man who once was the largest independent boat dealer in Texas. He was shutting his doors because it became almost impossible for the average boat buyer to get financing on a used boat. This of course has killed the used boat market. He said that before Dood-Frank there were over 2,100 independent used boat dealers in Texas. Now there are slightly over 700.

    Boat buyers and boat sellers who depended on financing suffer. The people who worked for the boat dealers are looking for new jobs.

    The only people who benefit are the cash buyers because now there is less demand for the available supply.

    1. Another victory for Obama and his fellow travelers against capitalism.

  9. Sarcasm Button On
    Comrades, one of the best ways to kill the capitalist machine is through adding more regulations, rules, restrictions, etc. Over-regulating is a mechanism that has proven time and again to eliminate competition, growth and individual success. These suffocating new rules will eventually destroy capitalism as we know it in the United States and force individuals into the state’s collective. Individualism is contrary to the needs of the the collective. Individual success must be punished for the collective good. Individuals must be coerced into joining the state. And liberty? Well, that goes totally against the collective’s mind set. Liberty means being free from coercion. Collectivism cannot work without coercion. People must be coerced for the greater good. After all, you did not build that. Individuals must be coerced into paying for anything and everything the collective needs. Individual behavior must be controlled by coercion as well. As far as free markets go, that’s the road to inequality. Markets must be controlled. Everything must be controlled. Everybody must be controlled. Only the all-knowing, all-connected and the over-educated elitists should not be controlled because only they are wise enough to be the slave masters of us all. Its for the collective’s own good. The slaves will thank us later after for what we did to them.
    Regulation is Freedom.
    Dependency is Freedom.
    Slavery is Freedom.
    Sarcasm Button Off

  10. CFPB raised wire transfer rates from $35 to $60. They also require banks to provide a local currency amount, so for personal transfers, they have to be made before 2:00 pm west coast time, so they can get a currency quote. (As if people sending money to their relatives in Badbadastan don’t know the exchange rate.) You also get a 30 minute regret period.

    Business transactions don’t get these features, but they still pay the $60.

    So, on the one hand, Jose who wants to send money home on Saturday, his day off, now has to take time off to do so. He also now pays 6% on his $1,000 wire vs. 3.5% (Though he may opt to use much cheaper methods that are already getting around these rules.)

    That said, my bank did say there are more and more old people and idiots getting tricked and this allows them to get the money back.

  11. RE: Fannie Mae
    You know Barney Frank is going to be involved with anything with the word “Fannie” in it.

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