Business Implications of Government Action: Inside Dodd-Frank

by Cady North

Get ready for regulation. Even if you’re not involved with the financial services industry, what is happening in the nation’s capital with the Dodd-Frank law is fascinating. Now that the lawmaking phase is over, financial regulators are proposing more than 300 new regulations, with 100 final rules alone coming this summer. It reminds me that having a deep understanding of how government and public policy works can be a very valuable skill, especially as folks in Washington try to figure out how to prevent another major financial crisis in the future.

My recent Bloomberg Government study, “Dodd-Frank Act Creates 122 Ways to Influence Regulators,” scoured the now 8-month-old Dodd-Frank law and found that it will create 122 new divisions, offices, advisory committees and consultations within the federal government to implement the law. That makes one new office or consultation for every seven pages of the 849-page document.

The Treasury Department, the Federal Deposit Insurance Corporation, the Federal Reserve, the Office of the Comptroller of the Currency, the Securities and Exchange Commission and other agencies are tasked to work together to identify and remove risks that could destabilize the financial system. Aside from trying to stop too-big-to fail banks from bringing down the economy, the law gives regulators other new authorities. For instance, agencies must set up procedures to police financial products like over-the-counter derivatives, credit cards, mortgages and firms like insurers, rating agencies, hedge funds or broker-dealers.

As a result of the new regulations, the job market in Washington isn’t hurting. The President’s FY 2012 Budget released in February requested funding to hire 5,000 employees at six financial regulators by the end of the fiscal year, as they implement the Dodd-Frank law and conduct their regulatory duties. Some agencies, like the SEC, have delayed implementation of some provisions because of funding constraints and the lack of a final FY 2011 appropriations bill.

The new government agencies and offices will range in size from a 1000+ employee Consumer Financial Protection Bureau to dozens of smaller Offices of Minority and Women Inclusion that each of the financial regulators and Federal Reserve district banks must create.

There are three key takeaways from this. First, regulators are expected to hire staff, find or furnish office space and draft rules that will be implemented over the course of several years. They will have to balance all these new duties while continuing strong enforcement over the financial markets and banks.

Second, the new federal agencies and offices represent important opportunities for companies to provide information that could influence the regulations yet to be written. Affected companies and their trade associations will be spending big bucks to decipher the rules, write comment letters and quantify potential impacts.

Finally, as these rules are implemented, there will undoubtedly be costs and benefits to the private sector. As a result, firms could change business strategies, make decisions to modify products and services or experience revenue impacts. There will likely be winners as well as losers, but it could be years before all the impacts of this law are fully understood.

As the implementation continues, it’s worth watching through your UT government eyes to consider the ways that politics and regulation intersect with the private sector to change behavior. In this example, there seems to be an unlimited number of potential scenarios that could have impacts, both positive and negative, on the ultimate goal of the legislation, which was to put a halt to the types of activities that caused the greatest financial crisis since the 1930s.

Cady North received her B.A. in government in 2004 and serves as a senior finance policy analyst for Bloomberg Government in Washington, DC. She analyzes the business implications of financial laws and regulations, and publishes her findings on BGOV.com. In the past, she led Financial Executives International’s outreach to Congress on the Dodd-Frank Act, and served in various roles at the state of Texas in both Austin and Washington.