From the June 01, 2011 issue of Futures Magazine • Subscribe!

Delaying Dodd-Frank

Deadline extension

imageNearly one year after the Dodd-Frank Wall Street Reform and Consumer Protection Act was passed largely along party lines in a Democrat-controlled Congress, Republicans, having taken control of the House, are working to delay its implementation and make sure regulators apply serious cost benefit analysis to proposed regulation.

Earlier this month the U.S. House Agriculture Committee voted 25-20 along party lines to advance legislation to delay implementation of new rules that would govern the derivatives markets. The Commodity Futures Trading Commission (CFTC) and Securities and Exchange Commission (SEC) were given a July 2011 deadline by which to write many of the new rules, a mandate both agencies have said they likely will miss.

More recently a group of Republican Senators announced they are seeking a review of the economic analyses performed by the regulatory agencies charged with implementing the Dodd-Frank Act. The Senators were buoyed by a report from the CFTC’s Office of the Inspector General that indicated less-than-rigorous cost benefit analysis work. The report stated, "Legal formalities trumped economic analysis in the rulemaking process. CFTC staff considered economic analysis to be merely an administrative task, rather than a substantive part of rulemaking."

One of the Senators, Richard Shelby (R-Ala.), stated at a Committee hearing on the Financial Crisis Inquiry Commission’s final report that "the costs and unintended consequences of Dodd-Frank continue to mount, while the benefits of the legislation remain unclear."

According to House Republicans, the bill is intended to give regulators the time needed to carefully consider new rules and avoid unintended consequences. "It doesn’t water the bill down and it’s not a kill tactic," says Frank D. Lucas (R-Okla.), chairman of the Agriculture Committee.

The other side of the aisle sees the move differently. Following passage, Ranking Member Collin C. Peterson (D-Minn.) released a statement saying, "Provisions that would address speculation in the marketplace, prevent another AIG-like bailout, fight manipulation, combat fraud and take on insider trading would all be delayed … I can’t figure out this bill’s objective, except to push financial reform implementation so far down the line in the hope that these provisions never go into effect."

The bill would give regulators 18 additional months to consider rule proposals. "The Republicans think they can control the Senate 18 months down the road, and they feel they can maintain their House majority. If that happens, it is a lot easier to overturn the legislation if it hasn’t been implemented," says Jay Gould, partner at Pillsbury Winthrop Shaw Pittman LLP.

Even if it is passed by the House, the bill likely would face opposition in the Senate and from President Obama.

"It’s curious that a bill, which supposedly corrects the perceived notion of rushing the rules, was rushed through the Committee only 20 days after its introduction," Petersen said.

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