Dodd-Frank Act Marks Its One-Year Anniversary
July 21, 2011
FEI Summary

Thurs., July 21, 2011, marked the one-year anniversary of President Barack Obama signing the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) into law. The controversial Dodd-Frank Act is cited as one of the largest financial regulatory overhauls in history, and was enacted in the wake of the worst financial crisis since the Great Depression. Dodd-Frank contains provisions intended to reduce systemic risk in the financial system through greater oversight and regulation, including regulation of the over-the-counter (OTC) derivatives market, and increase consumer protections relating to financial products and services.

Though the law authorized the issuing of more than 300 new rulemaking areas, regulators have issued 121 proposals, finalized 38 of them and missed 26 deadlines, according to estimates by the law firm Davis Polk.

Government officials spent time reviewing the successes and failures of the Dodd-Frank Act over the past year. Republicans on the House Financial Services Committee issued a report card one year after the enactment of the law stating that the law fails to meet its promises of strengthening the economy, stabilizing the housing market, ending “too big to fail” and streamlining the regulatory process. Chairman Spencer Bachus (R-Ala.) argued that the 2,300-page bill and its potential to create 400 new rules are “a massive roadblock to our economic recovery” as this time next year, the budgetary cost for the Dodd-Frank Act will exceed $1.25 billion. Also, the committee’s report states that while the law creates 2,800 government jobs, there is no evidence that the act will create any private sector jobs. 

House Republicans have also tried to alter or amend some of the existing provisions of the Dodd-Frank Act, such as the Consumer Financial Protection Bureau, which is intended to monitor and regulate all financial products and services relating to consumers. This week, the House passed a bill (H.R. 1314) to overhaul the structure of the new agency, including changing the existing structure to a five-person board to give more checks and balances rather than a single director in charge. While more than 40 Republican senators sent a letter to president Obama in May pledging to block any nominee unless substantial changes to the bureau were made, the House’s bill has little chance of passing the Democrat-led Senate. Additionally, the president has indicated his intention to veto legislation that may weaken the Dodd-Frank Act.

At the same time, the law’s supporters continue to endorse the sweeping financial reform law as it marks its one-year anniversary. U.S. Treasury Secretary Timothy Geithner recently wrote his op-ed in The Wall Street Journal that "Too many Americans are still suffering from the pain of the financial crisis. We owe them a financial system with better protections against abuse and catastrophic risk." Geithner praised the work of Dodd-Frank thus far, pointing to new, simpler mortgage disclosure documents proposed by the CFPB, new regulatory authority to prevent another financial crisis and resolve systemically significant firms and an international agreement on capital requirements.

The international response to the financial crisis and coordination with the international community is an issue that will be discussed publicly by the U.S. Securities and Exchange Commission as well as the Commodity Futures Trading Commission (CFTC) on Aug. 1 during a public roundtable discussion on international issues relating to implementation of Title VII, the derivatives title of the Dodd-Frank Act. For more information on the roundtable discussion, please click here.

As FEI continues to follow the progress of the Dodd-Frank Act, one of the most significant issues affecting senior-level financial executives and their companies is the impact of regulating the OTC derivatives, or swaps, market. Congress provided end users, companies utilizing swaps to hedge business risk, with an exemption from new clearing requirements in the law’s text. However, regulators have proposed rules that could subject some corporate end users to costly margin requirements, diverting much-needed funds away from investments in these businesses for job creation and overall economic growth. Growing concerns about the pace of rulemaking in the derivatives area and regulators’ ability to get the rules finished prudently may have led to the recent decision by the CFTC to provide relief from complying with the new rules until Dec. 31, 2011 in some cases rather than the original July deadline. 

To read FEI’s Committee on Corporate Treasury comment letters on derivatives regulation, please click here.

Prepared July 21, 2011 by Alexandra Sipes, legislative aide, Government Affairs, Tyler Roberts, policy analyst, Government Affairs, and Christina Crooks, manager, Government Affairs-Financial Policy, Financial Executives International (FEI). This summary does not represent FEI opinion specifically noted above.