Michelle Harner
As anticipated, the House of Representatives passed the financial reform compromise bill (the Dodd-Frank bill) last week. (For summaries of the bill, see here and here.) The Senate, however, has postponed its vote until mid-July. Proponents expect a much closer vote in the Senate, and Democrats are scrambling to secure the required votes. Further compromise on the bill likely will be necessary to reach that goal.
That being said, many believe that the Dodd-Frank bill ultimately will pass. And it is quite an undertaking—this bill itself is over 2,000 pages. The task of implementing and enforcing most of the bill’s provisions is delegated to federal agencies, many of which are already overwhelmed, understaffed and underfunded. Moreover, the recent performance of some of these agencies is underwhelming (see also here, here and here). So where does that leave us?
Hopefully, if the legislation passes, things will slow down a bit and allow for thoughtful reflection. The SEC, FDIC, Federal Reserve, the new Financial Stability Oversight Council, other agencies and the new offices created within certain agencies (like the new Consumer Financial Protection Bureau) need to thoroughly consider the bill’s objectives and, more importantly, the appropriate means to accomplish those objectives. These agencies need to do some soul-searching so to speak. Do they have the right people with the necessary skill sets? Do they have enough funding? (For example, many reports suggest that the new Consumer Financial Protection Bureau will be staffed by transferring existing employees from and among various agencies to that office at the Federal Reserve, and its initial budget is $500 million. Workable?) If not, are we just setting ourselves up for an even greater fall next time by creating what amounts to a false sense of security?
I do not have the answers to these questions, but I hope these and similar questions are being considered, and that people are working to find the answers. I also hope that we reflect on and learn from past experiences, such as the implementation and enforcement of the Sarbanes-Oxley Act of 2002 (see also here, here and here). For example, in monitoring conduct under and enforcing the Dodd-Frank bill, staffers at agencies need to be trained not only to look for the products and behavior that contributed to the recent recession, but also to learn about and identify innovations that might contribute to the next one. They also need to avoid complacency once the fervor over the recent recession recedes (see here and here). The challenges faced by politicians in working this bill through Congress may pale in comparison to the challenges ahead.
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