Jimmy Rodefer: As rule deadlines pass, banks and businesses wait for Dodd-Frank impact

During the Great Recession that began in 2007, people were — and to some degree, remain — pessimistic, pointing fingers and feeling pummeled by economic forces beyond their control.

Wall Street, banks and other financial institutions came under the greatest scrutiny and received some of the harshest criticism (fair and unfair, depending on one's point of view) for the economic slide into the "worst economic crisis since the Great Depression," as the downturn is frequently called.

In response, the Dodd-Frank Act, proposed by the Obama administration, was passed by Congress and signed into law in July 2010.

The goal was to do with legislation what frontier marshals did in the Old West: clean up this here financial town and threaten lawbreakers with the hoosegow.

To be fully implemented, Dodd-Frank required 398 new rules, but in four years only 52 percent actually have been adopted, CNN has reported, citing an analysis by law firm Davis Polk.

"Out of 280 rulemaking deadlines that have passed, 127 (45 percent) of them have been missed by regulators," according to Davis Polk.

That's good news for banks because they haven't yet been hit with the compliance expense that will be delivered to their doorsteps by many, most or perhaps all of the as-yet-undelivered rules.

But it's bad news for banks because they know those rules are coming like a delayed train, and when they arrive they'll have on-board expenses and requirements the nature of which the banks can now only speculate.

Uncertainty is not a business's friend.

Dodd-Frank played a prominent role in the recent debates surrounding the $1.1 trillion "Cromnibus" (for ‘continuing resolution and omnibus') legislation that passed the House and Senate and was signed by President Obama to fund the government through Sept. 30, 2015.

On a similar note, the Federal Reserve on Dec. 18 pushed back until 2017 the deadline by which banks will have to sell their holdings in private equity, hedge funds and venture-capital funds.

Also on Dec. 18, The U.S. General Accounting Office (GAO) published a 128-page report titled: "Dodd-Frank Regulations: Regulators' Analytical and Coordination Efforts." According to the GAO, Dodd-Frank has shown some decent results in terms of reducing institutional leverage and increasing liquidity, and the GAO gives a tepid analysis that the law, "may be associated with improvements in some indicators of their safety and soundness," among other items.

However, the report also says remaining regulatory shoes have yet to drop: "The full impact of the Dodd-Frank Act remains uncertain because many of its rules have not been finalized or insufficient time has passed to assess the impacts of final rules."

Dodd-Frank is one of the most complex pieces of financial legislation ever considered, let alone passed. Given that complexity — and the extended rulemaking — America's financial community and consumers are quite literally waiting, according to GAO, to learn the law's full effects.

With Republicans in charge of Congress for at least the next two years, those effects likely will change again, while banks and their customers wonder which way the next political ship will sail.

This article was originally published in the Knoxville News Sentinel on December 28, 2014.

 

Tagged Accounting, Featured