Opinion

New report raises concerns about implementation of Dodd-Frank

Photo of Lachlan Markay
Lachlan Markay
Investigative Reporter, Heritage Foundation

Financial regulatory agencies are often failing to consider cost-benefit analyses in implementing the Dodd-Frank financial reform law, according to a new federal report.

The news may heighten concerns over the economic damage the law is expected to inflict on the financial sector.

“There’s concerns among the industry that the impact of the rules, either individually or collectively, could be too great,” according to Government Accountability Office (GAO) official Nikki Clowers. “There’s been a question about whether the benefits of the rules will outweigh the costs.”

Clowers is part of GAO’s Financial Markets and Community Investment Team, which released a report on Tuesday examining the cost-benefit analyses behind the implementation of Dodd-Frank by the major financial regulators.

The report found that the agencies are not assessing the balance between the benefits of regulations and their costs to industry with much consistency or effectiveness.

Most major financial regulators, including the Securities and Exchange Commission (SEC), the Consumer Financial Protection Bureau (CFPB), and the Commodities Futures Trading Commission (CFTC), are considered “independent regulatory agencies,” and hence are not bound by a recent executive order mandating cost-benefit analyses. Nor are they required to comply with Office of Management and Budget (OMB) guidance spelling out the details of those analyses.

The agencies told GAO that they attempt to comply with those requirements “in principle or spirit.” But according to the report, they “did not consistently follow key elements of the OMB guidance in their regulatory analyses” of Dodd-Frank rules.

For example, each federal regulator has issued guidance generally explaining how its staff should analyze the benefits and costs of the regulatory approach selected, but unlike the OMB guidance, such guidance generally does not encourage staff to identify and analyze the benefits and costs of available alternative approaches …

 

[I]n our review of four major rules, we found that most of the agencies did not consistently discuss how they selected one regulatory alternative over another or assess the potential benefits and costs of available alternatives. Without information about the benefits and costs of alternatives that agencies considered, interested parties may not know which alternatives were considered and the effects of such alternatives, which could hinder their ability to comment on proposed rules. More fully incorporating OMB’s guidance into their rulemaking guidance, as we previously recommended, could help agencies produce more robust and transparent rulemakings.

Dodd-Frank is expected to impose a whopping $28 billion in fees and assessments on the financial sector. It will likely increase costs for consumers, reduce the services banks offer, and hike those banks’ overhead. The GAO report suggests that the law’s financial damage could be mitigated, but that agencies often don’t take steps to do so.

Lachlan Markay is an investigative reporter for The Heritage Foundation. Follow him on Twitter.