Clarke Dryden Camper is Senior Vice President, Head of Government Affairs and Public Advocacy at NYSE Euronext, a...
A recent Economist editorial critical of Dodd-Frank has drawn a heated response from the Act’s co-authors, as well as other Washington policymakers. In its Feb. 18 editorial, the Economist writes there is “an ever-more-apparent risk that the harm done by the massive cost and complexity of [Dodd-Frank’s] regulations, and the effects of its internal inconsistencies, will outweigh what good may come from it.”
By way of illustration, the Economist cites the implementation of the Volcker rule. According to the Economist, that single measure requires a proposed 298 pages of new regulations and five federal agencies to enforce it. A review of these rules by law firm Davis Polk includes “383 explicit questions” for firms attempting to comply, which “break down into 1,420 subquestions.” According to Davis Polk, only 93 of the 400 rule-making requirements mandated by Dodd-Frank have been finalized. One legal challenge to a Dodd-Frank requirement has already been upheld U.S. Court of Appeals for the District of Columbia because of “insufficient or faulty economic analysis of costs and benefits.” One banking industry veteran predicts a decade of legal challenges ahead. In sum, the Economist warns, there is a risk that Dodd-Frank “will smother financial institutions in so much red tape that innovation is stifled and America’s economy suffers.”
In response, former Senator Chris Dodd argues “a comprehensive overhaul of our regulatory structure was required to keep up with a 21st century global financial marketplace. To limit our response to 30 or 40 pages would have made easier reading, but that would have been the height of irresponsibility.” Congressman Barney Frank accused the magazine of “simply repeating the claims of a few in the industry, who fear that we are moving away from the disastrous era of light-touch regulation.…” One of the forces behind the Volcker rule, Senator Jeff Merkley, wrote that the rule was necessary because “when high-risk investing blows up, it should vaporize only the funds of investors, not the credit essential to a strong economy.”
While opinions on Dodd-Frank in Washington vary widely, one thing is certain: the controversy about the implementation of the law won't quiet down anytime soon.