The Truth Can Not Be Hidden!! A GAO Report Shows Regulators Struggling to Finalize Dodd-Frank Rules (with Lofchie Comment)

GAO issued a report in which it reviewed the progress of financial regulatory reform. According to the finding, implementation of reform is being delayed by the number, complexity and interconnectedness of the issues to be addressed, as well as a fragmented regulatory structure.

Lofchie Comment: While the report is explicitly about the progress of Dodd-Frank rulemaking, it is implicitly a negative comment on the organization of our regulatory system and on the the "benefits" of Dodd-Frank. As to the regulatory structure, I quote from the GAO Report (page 3 in the Highlights):"The efficiency of the regulatory system was not materially changed as a large, fragmented regulatory structure with numerous regulators remains. This requires regulators to coordinate actions and try to reconcile or balance differing approaches to ensure that regulated entities are subject to appropriate scrutiny."The reality is not merely that the regulatory structure was not improved; the reality is that the fragmented regulatory structure was worsened. By way of example, the dividing line of authority between the SEC and the CFTC--illogical to begin--is now a horror show of complexity. See, e.g., Lofchie's Guide to CPO-CTA Regulation: What Is a "Swap" and Other Jurisdictional Questions. The fact that all of the banking regulators, the SEC and the CFTC have responsibility for adopting rules to implement Volcker assures that we will have neither consistent rules, nor (and this is worse) consistent policy.As to the benefits of Dodd-Frank, and again I quote from the GAO Report (on page 19, with regard to orderly liquidation):"Although many market observers expect that these resolution reforms will help mitigate threats to the financial system posed by the failure of a SIFI or other large, complex, interconnected financial firm, some questions about their potential effectiveness have been raised. Some observers noted that OLA is new and untested, and its effectiveness in reducing risky behavior by institutions will depend on the extent to which market participants believe that FDIC will use OLA to make an institution's creditors and shareholders bear losses of any SIFI failure. Furthermore, others questioned whether FDIC has sufficient capacity to use OLA to handle multiple SIFI failures and thus prevent further systemic disruption. Others have raised concerns over whether any FDIC-imposed losses on some creditors of a failed firm could threaten the soundness of other important financial institutions or how FDIC would handle the non-U.S. subsidiaries of a failed firm."In short, proponents of Dodd-Frank assert that the statute will make the economy safer. However, there are a lot of reasonable observers out there (myself included, assuming I qualify as reasonable), who believe that Dodd-Frank in many respects makes the system more dangerous, and that the benefits supposedly provided by the statute are at best speculative and uncertain.

Click here to view report in full (links externally to GAO website).