Group of professionals discuss finance

Breaking news and expert analysis on legal and compliance issues

[Back To Home][Back To Archives]

From Banking and Finance Law Daily, December 12, 2013

More guidance is needed for Dodd-Frank rulemakings, GAO reports

By Lisa M. Goolik, J.D.

While the financial regulators charged with implementing regulations required by the Dodd-Frank Act are conducting regulatory analysis required by law, the regulators may not be consistently determining which rules require Congressional review, according to a new report by the Government Accountability Office (GAO). As a result, the GAO has recommended that the Office of Management and Budget (OMB) provide guidance to help standardize the determination. The GAO’s report also examined interagency coordination, the possible impact, and retrospective reviews of such rulemakings.

Background. The Dodd-Frank Act requires that the GAO annually study financial services regulations. To compile its report, the GAO: identified and reviewed 70 Dodd-Frank rules that became effective from July 24, 2012, through July 22, 2013; examined the Consumer Financial Protection Bureau’s policies, procedures, and other materials; developed indicators on the impact of the Act’s systemic risk-related provisions and rules; conducted a regression analysis to assess the act’s impact on large bank holding companies; and interviewed federal financial regulators and officials from the Treasury Department, the Financial Stability Oversight Council, and OMB.

Regulatory analysis. Federal agencies generally must conduct regulatory analysis pursuant to the Paperwork Reduction Act and the Regulatory Flexibility Act, among other statutes, as part of their rulemakings. In addition, under the Congressional Review Act (CRA), before rules can take effect, federal agencies must submit their rules to Congress and the Comptroller General, and rules deemed major by the OMB generally may not become effective until 60 days after the rules are submitted. The CRA outlines criteria for determining whether a rule is major, such as whether it will result in an annual effect on the economy of $100 million or more. The OMB is responsible for determining which rules are major under the CRA but relies on agency analyses to help make the determination.

The GAO found that that OMB and the agencies may not have applied the CRA criteria consistently in determining which rules are major rules. Although OMB issued a memorandum in 1999 to instruct agencies on how to implement CRA, the memorandum provided minimal guidance on how agencies should apply CRA’s major rule criteria—particularly its $100 million threshold, the GAP reported. In addition, the GAO found that the criteria within the guidance could be applied in different ways. As a result, the GAO found that some independent agencies submitted all their rules to OMB, while others did not. If rules are not properly classified as major, Congress’s ability to review major rules before they become effective is limited, the GAO warned. The GAO concluded that the agencies would benefit from additional guidance from the OMB on the CRA criteria and its application.

The OMB, however, responded that such guidance is not needed, in part because it disagreed with the GAO’s findings that the OMB inconsistently applied CRA criteria in its designation of major rules and stated that the examples in the GAO’s draft report were not actual inconsistencies in the application of the CRA criteria. The OMB also questioned what new guidance to agencies would entail.

Interagency coordination. The GAO reported that federal agencies continue to coordinate on rulemakings, and the financial regulators recognize the importance of interagency coordination during the rulemaking process. Federal agencies coordinated on 49 of the 70 Dodd-Frank regulations that the GAO reviewed. For 10 of the 49 regulations, the Dodd-Frank Act did not require coordination, and the GAO found that the coordination was voluntary. In addition, the CFPB is required by the Dodd-Frank Act to coordinate with federal and state regulators in its supervision of certain banks and nonbanks that offer or provide consumer financial products or services. The GAO reported that in May 2012, the CFPB and financial regulators entered into an agreement that specifies how they plan to meet the Act’s coordination requirements for the supervision of banks with more than $10 billion in assets. The CFPB has entered into similar agreements with state regulators to coordinate examinations of banks and nonbank financial entities.

The GAO also noted that in November 2011, it recommended that the Financial Stability Oversight Council (FSOC) work with the federal financial regulators to establish formal coordination policies for rulemaking that clarify issues, such as when coordination should occur, the process that will be used to solicit and address comments, and what role FSOC should play in facilitating coordination. The GAO noted that to date, the FSOC has not implemented this recommendation.

Impact. After updating past indicators used to analyze the impact of the Dodd-Frank Act’s systemic risk-related provisions and rules and conducting a regression analysis to assess the act’s impact on large bank holding companies, the GAO concluded that the Act has not been fully implemented, and its full impact remains uncertain. Using recently released data, the GAO updated its prior report’s indicators monitoring certain risk characteristics of large U.S. bank holding companies. The GAO found that the indicators suggest these companies, on average, have decreased their leverage and enhanced their liquidity since the Act’s passage. In addition, the GAO’s updated regression analysis suggests that the Act continued to have little effect on the funding costs of large U.S. bank holding companies but may have helped improve their safety and soundness. Based on its analysis of the Act and market data, the GAO was also able to develop new indicators to measure the Act’s impact on swap reforms that will establish baselines for measuring future changes.

Retrospective review. Finally, GAO examined federal financial regulators’ plans to conduct retrospective reviews of their Dodd-Frank rules and continued to recommend that the regulators determine how best to measure the impact of their regulations. Independent agencies, including federal financial regulators, were asked to develop plans to conduct retrospective reviews of existing rules that may be excessively burdensome or costly. The GAO reported that the regulators vary in their approaches and progress in developing and implementing such plans. In 2011, the GAO recommended that the regulators determine how they will measure the impact of Dodd-Frank regulations in their plans, but they have not done so to date. Given the importance of the information, the GAO maintained that doing so would result in a retrospective review “as robust as possible.”

MainStory: TopStory CFPB DoddFrankAct FinancialStability

Banking and Finance Law Daily

Introducing Wolters Kluwer Banking and Finance Law Daily — a daily reporting service created by attorneys, for attorneys — providing same-day coverage of breaking news, court decisions, legislation, and regulatory activity.

A complete daily report of the news that affects your world

  • View full summaries of federal and state court decisions.
  • Access full text of legislative and regulatory developments.
  • Customize your daily email by topic and/or jurisdiction.
  • Search archives for stories of interest.

Not just news — the right news

  • Get expert analysis written by subject matter specialists—created by attorneys for attorneys.
  • Track law firms and organizations in the headlines with our new “Who’s in the News” feature.
  • Promote your firm with our new reprint policy.

24/7 access for a 24/7 world

  • Forward information with special copyright permissions, encouraging collaboration between counsel and colleagues.
  • Save time with mobile apps for your BlackBerry, iPhone, iPad, Android, or Kindle.
  • Access all links from any mobile device without being prompted for user name and password.