The Federal Reserve ordering Banco Santander SA to change the way the board of directors oversees the management and operation of its U.S. subsidiaries is one of first and most meaningful examples of the expansion and extension of the Dodd-Frank legislation beyond external compliance policies, procedures and implementation by regulators.

Dodd-Frank legislators established a new meaning to U.S. administrative law procedures. Passed in a fury of debate, the huge 2,000 page legislative document was left to the regulators to interpret and administer. To date, slightly more than half of the mandates defined in the law have resulted in specific regulatory positions such as the Volcker rule and the ‘living will’. However, in the development process since 2010, the regulative bodies including the Federal Reserve Board, the Office of the Comptroller of the Currency, and the Securities and Exchange Commission have broadened the intent of the basic law to allow examination and criticism and penalizing of specific units within a business, and more recently specific managerial and executive positions.


A significant but short debate on federal versus state control of corporate finance occurred when former Attorney General Eric HolderEric Himpton HolderArkansas legislature splits Little Rock in move that guarantees GOP seats Oregon legislature on the brink as Democrats push gerrymandered maps Christie, Pompeo named co-chairs of GOP redistricting group MORE suggested he might seek a criminal indictment against a bank for violations of federal laws. The storm of protest that ensued resulted in a quick end to this proposal. However, the new extension of federal regulations to individuals whose responsibilities and accountabilities have been defined in state corporation law for 200 years could be seen by some as a foot in the door toward full federal dominance of corporate law.

The Banco Santander case expands the scope and names the elected members of the board (the fiduciary agents of the shareholders) as respondents to charges of inadequacies in policy, procedures and implementation on carrying out their legally defined responsibilities and gives them 60 days to convince the Federal Reserve Board that measures have been taken to rectify these inadequacies.

This is obviously a needed action. However, it does extend the long arm of regulation in administering our legal system. Federal expansion into the former state regulation of corporation law began with passage of the Sarbanes-Oxley Act of 2002. This legislation expanded the prior reach (since 1934) of the SEC on securities matters for the first time allowing for federal civil and criminal indictment penalties for top corporate officers violating specific accounting principles and regulations.

Directors of Enron were severely punished under this law and regulation. However, it is the process of giving regulators the task and responsibilities for interpreting the intent of the Congress granted by Dodd-Frank in 2010 that has given the federal regulators license to expand the scope and intent of the legislation.

This has undoubtedly yielded benefits in regularizing ills evident in the financial crises of 2007. However, is this extensive expansion of federal level oversight into the domain of corporate law heretofore granted to individual states in the best interest of our administrative law policy? Does it challenge the intent of the Founding Fathers, especially Alexander Hamilton, in retaining control of the business community to the individual states?  These are meaningful issues deserving of considered debate.

James is a professor at Pace University’s Lubin School of Business and chairman emeritus of its Center for Global Governance, Reporting and Regulation.