Implementing Dodd-Frank

Bloomberg Businessweek ran an article last Tuesday on Chairman Bachus’ letter to the Financial Services Committee regarding implementation of Dodd-Frank’s new rules for Wall Street. In his letter the Chairman stressed his intention to review implementation of the Volker rule and in particular to:

"ensure that it does not result in unintended consequences."

This effort comes against the backdrop of a report issued last month by the Financial Stability Oversight Council on implementation of the Volker rule. The report focuses on ten recommendations but critics feel that it leaves much unaddressed. Bradley Sabel of Shearman & Sterling LLP wrote:

"The Study appears to validate the suspicions of many observers that it is virtually impossible to recognize, much less define a clear distinction between market-making and proprietary trading."

This is the essential problem with sweeping regulation and one that will be revisited throughout the 112th Congress. The new House majority plans to employ aggressive oversight as federal agencies seek to implement a number of signature Obama administration accomplishments from the 111th Congress.

It is difficult to develop and implement regulations that prevent and curtail fraud and abuse while simultaneously preserving necessary and desired sector functions, maintaining competitiveness and fostering innovation. Complex industries such as the financial services sector move significantly faster than the legislative and regulatory processes.

As a former banker, I have seen first hand the negative impact of the heavy hand of regulation. The industry benefits from reasonable rules and so do consumers. Effective regulation comes from dialogue between industry and regulators. Both sides want to avoid an explosion of compliance and policing that inevitably results in what David Weidner of Market Watch calls a “stimulus package for lawyers” and a drag on the bottom line. CEOs would rather embark on new ventures than play compliance defense.

Interested parties would be wise to become and remain involved in how the many Dodd-Frank rules including the Volker rule evolve. Cassidy & Associates is closely monitoring the activity of the Dodd-Frank legislation and can provide critically important insight and guidance regarding the oversight and implementation process.