Dodd-Frank Act, Regulators and Scoring in the Game

From the time I was a young child, I have enjoyed playing games — card games, board games, baseball games, basketball games and golf games, to name a few. I also have enjoyed keeping score in these games. Although I am not a win-at-all-cost person, I am a type A personality, driven by competition. As a matter of fact, I don’t much enjoy playing a game without keeping score. It’s the score that allows us to comparatively assess how we are doing and that drives us to improve.

I find it interesting, and frustrating, that those regulatory agencies tasked with implementing the Dodd-Frank Act (DFA) continue to score poorly. Recently the law firm of Davis Polk & Wardwell LLP in Washington, DC, released its monthly update on how the regulatory agencies are doing relative to issuing regulations vs. DFA deadlines. According to Davis Polk, of the 279 rulemaking requirement deadlines that have passed, 104 have been met, and the remaining 175 have been missed. Thus the regulators have met only 37 percent of their deadlines, missing at the rate of 63 percent.  Now if this were the game of baseball, batting .370 would be excellent, worthy of a spot in the National Baseball Hall of Fame in Cooperstown, N.Y. But if this were more than a game, for example the world of surgery, a 37 percent success rate would result in a revoked license. Perspective is important.

The perspective that applies here is the bank regulators should be performing at near the level that they expect from banks. No bank performing at a rate of 37 percent in consumer compliance or safety and soundness would earn a spot in a bankers’ hall of fame. Instead it could have its license (charter) revoked.

Why, then, is it acceptable for banking regulators to fail to do their duty 63 percent of the time? Again, a little perspective might be helpful:

  1. The timelines established by Congress were unrealistic from the start, set by legislators who do not always understand the complexities of the laws they pass.
  2. It may actually be to bankers’ advantage that the rules do come out slowly, giving them time to adjust to the new regulations, instead of being inundated with myriad new rules all at once.
  3. Regulators’ first attempt in releasing new regulations for comment frequently results in feedback that causes them to reconsider how a law should be implemented, often to the bankers’ benefit. In other words, our very system of opening regulations to public comment lengthens the process, but at the same time strengthens it.

However, at this juncture of nearly three years after the passage of DFA, our process and some regulatory foot-dragging account significantly for why our economic recovery continues at such a moribund pace. Business-environment uncertainty — created largely by costly new rules from DFA, Obamacare and high taxation rates — bogs down the rate of economic recovery. Couple that scenario with the uncertainty of banking leaders, fearful of further regulatory criticism, who are choosing less risk in their loan portfolios. This mix can at best lead to a lackluster recovery over a long period of time.

Let us hope that our message gets through to Congress and the president soon, so that appropriate steps can be taken to get this great nation back on track and again scoring the highest in the game. Because, in the end, it’s far more than just a game!

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