The Dodd-Frank Freeze
While the Dodd-Frank industry overhaul seemed on track to reshape financial rules by this summer, those efforts have largely stalled. Yet another shot across the bow this week bodes poorly for progress on key issues.
We’ve known for some time that federal agencies charged with implementing Dodd-Frank — including the SEC and CFTC — have hit delays and won’t likely meet a 21 July 2011 deadline for implementing key mandates of the legislation. And now the House Financial Services Committee, led by Chairman Spencer Bachus, R-AL, has proposed delaying any new derivatives rules until September 2012. Loosely translated, nothing will happen until after the next election cycle (one and a half years from now), if at all. Talk about a shot to the heart of Dodd-Frank.
Truth is the outlook for derivatives reform has not been promising for some time. Indeed, the U.S. Treasury Department already had proposed excluding foreign-exchange swaps from new Dodd-Frank rules governing derivatives — an exemption for which banks were pushing hard. When the government hands out exemptions, it only reinforces the perception that the new regulatory framework is flawed, with the potential to inflict a host of unintended consequences on the capital markets.
But bringing the rule-making process to an abrupt halt isn’t the answer either. In fact, we thought the moment was right for a visionary approach from Bachus and his Senate counterpart, Tim Johnson, D-SD. One that focused on key systemic pieces of the massive Dodd-Frank Act and made progress on the issues that were at the heart of the financial crisis. Things like derivatives, systemic risk protections, and “too big to fail.” The current state of public opinion and low ethical standing of financial services presented a unique opportunity to streamline reforms and show leadership in steering Dodd-Frank’s historic path, we thought.
We urge policymakers to bear in mind that effective financial regulatory reform is a long-term effort, a very complicated process, and one that cannot be rushed. But stopping it in its tracks?
Give us your thoughts.
