A period of restraint is needed in issuing new rules and regulations. This hiatus period could be fruitfully used to discuss the long range goals for the overall regulation process. A major goal should be the development of clear and precise benchmarks as to where we are, what is left to be done and how we will measure both progress and impact. The current high levels of uncertainty as to what is coming next, and the pressure on smaller organizations to merge or survive is providing a challenge to our banking system and our national economy.
The Dodd-Frank Wall Street Reform and Consumer Protection Act, signed July 21, 2010 took more than 800 pages to spell out policy goals and a very loose framework. It has provided the broadest, nearly unlimited, powers to implement the law into regulations by several authorized Federal agencies.
Since July 2010, the agencies have sent to banks and other financial institutions more than a hundred proposed rules. By July 2011, the recipients had received 398 rules for comment. Some estimates are that this rule making took over 81,000 pages to prepare and describe. After receiving comments the agency can act to finalize the rule into law.
Once a rule is finalized it is posted in the Federal Register and becomes law. Therefore, any repeal of the basic law would require dealing individually with the several hundred rules, now law, listed in the Federal Register. To revise or repeal each of these regulations would require great cooperation between those with decision making powers, take possibly years to achieve and create even greater uncertainty as the long, drawn out process takes place.
Learning the new rules is time consuming, costs money, and requires training. Even the largest organizations find it hard to cope. Most organizations, realizing they cannot cope with everything at one time tend to prioritize the risks.
For the past year, Pace University has been engaged in the design and implementation of a unique 26- week certification program for managers involved with regulation and compliance in financial institutions. This program, a joint venture between the Pace Center for Global Governance, Reporting and Regulation and the Association of International Bank Auditors, required nearly 1,000 man hours to design, with four Pace professors and eight compliance and internal audit professionals from international and US banks. I question that if a highly trained and experienced group of professionals required this level of time spent and with a sincere effort to find meaningful solutions, how long might it take an adversarial group to iron out compromises?
If repealed on the floors of Congress, nearly 300 rules and regulations of the Dodd-Frank Act would be made moot or at best highly in doubt as to their viability. What new levels of uncertainty would arise? What policies toward lending could lenders take to make credit available? Who would be motivated to add personnel and make new capital investments? If uncertainty has brought our current market oriented society to a near standstill, how could more and more complex questions as to our legal and regulatory environment be considered as an improvement?
Even with the current state of confusion and uncertainty, a repeal of the basic law would make the situation even worse. Taking a pause and proceeding with honest and objective analysis of realistic and coordinated objectives is a far better and wiser solution.
James is executive director of the Center for Global Governance, Reporting and Regulation at Pace University’s Lubin School of Business in New York City. James is also program director of Pace University’s new Certified Compliance and Regulatory Professional certificate program. He began his management consulting career with Hewitt Associates in Chicago and McKinsey & Co. in New York City.