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WSJ: Overhaul Grows and Slows


Washington, May 2 -

What is 20 times taller than the Statue of Liberty, 15 times longer than "Moby Dick" and would take the average reader more than a month to read, even if you hunkered down with it for 40 hours a week?

The answer: The growing paper trail formed by the Dodd-Frank law, passed by Congress last year to give U.S. financial regulations their biggest overhaul since the Great Depression.

Getting the legislation through that political thicket was easy compared with the slog now under way to turn Dodd-Frank into regulations. The process has produced more than three million words in the Federal Register—or more than 3,500 11-inch-high pages that would stretch end-to-end more than a third of the way from the Capitol to the White House.

And about 62% of the 387 sets of rules required by the law haven't even been proposed, according to law firm Davis Polk & Wardwell. In April, not a single U.S. agency met any of the 26 Dodd-Frank-related deadlines set for April under the law. Just 21 rules are finished, including a new requirement for say-on-pay votes for shareholders and a permanent increase in bank-deposit insurance to $250,000.

The pace has snarled the creation of bounty payments by the Securities and Exchange Commission and Commodity Futures Trading Commission for whistleblowers who expose financial fraud. Banking regulators are lagging on completion of a rule that would force lenders to retain some of the credit risk on mortgages that are sold off and bundled into securities.

"I count my blessings every day that I'm no longer a commissioner" at the SEC, says Joseph Grundfest, a Stanford University law professor who from 1985 to 1990 was one of the five commissioners who make decisions on behalf of the agency.

Regulators have warned for months about the daunting logistical pressures imposed by Dodd-Frank. Political and lobbying battles have further bogged down the process. Delays of a few months or so aren't expected to make much of a difference, but the Obama administration has repeatedly vowed to fight efforts by some Republicans to cause a longer freeze or attempt to undo some of the changes required under the law.

"The reality is, we're not going to complete all the work in the timetable Congress set," Scott O'Malia, a commissioner at the CFTC, said in an interview. But the need to "get the rules right" is more important than rigidly meeting Congress's "unrealistic" deadlines, he said.

The Dodd-Frank law has 849 pages, compared with 66 pages in the Sarbanes-Oxley Act, a 2002 law that overhauled accounting rules following the Enron scandal. The landmark Glass-Steagall Act, which created the Federal Deposit Insurance Corp. and barriers between commercial and investment banking during the Depression, was a slim 34 pages.

"Dodd-Frank is Sarbanes-Oxley on steroids. It's an exponentially greater volume of regulation," says Margaret Tahyar, a Davis Polk partner. The "sheer number of rules still in the pipeline makes it almost inevitable agencies will miss an increasing number of deadlines over the next year."

From CFO Journal
Companies Face Painful Tax Trade-Off FASB Tries to Close Lehman Loophole Chevron CFO Fires Back at Obama In addition to the 30 rule-making procedures that already have missed the deadline set by Congress, 145 are supposed to be completed by year end. A big chunk of the looming deadlines falls close to July 21, the one-year anniversary of President Barack Obama signing the bill into law.

Officials at the SEC, on the hook for more Dodd-Frank-related regulations than any other U.S. agency, have finished six rules, proposed 28 additional rules, missed deadlines on 11—and still have 50 to go, on which they have yet to issue any proposals. The agency's rule-making responsibilities range from new controls on credit ratings to powers to claw back executive pay.

John Nester, an SEC spokesman, said the agency is "working hard to meet the deadlines, with an emphasis on getting the rules right."

"We're stretched incredibly thin," SEC Chairman Mary Schapiro said last month.

Last week, the CFTC hit the brakes on many of its draft rules written to implement sections of the Dodd-Frank law, extending by 30 days the comment period on provisions that include a regulatory overhaul of the derivatives market.

The move came after criticism from the financial industry and some Republican lawmakers that the process was moving too fast. A bill introduced by Republicans earlier this year would delay new derivatives rules by 18 months.

Other rules also have been snagged by intense industry lobbying. Retailers and manufacturers have complained about the costs and practicality of implementing a requirement to disclose annually whether goods contain "conflict minerals" from war-torn central Africa.

Another rule that missed the April deadline sets new fee limits on debit-card transactions. The rule's wording has been the focus of an intense campaign by banks, which have billions of dollars in revenue riding on the outcome.

"The problem is not just the number of rules, it's the complexity of them, and it's the political power of the various constituencies who are affected by those rules," says Mr. Grundfest, the former SEC commissioner.

Some Democratic lawmakers have accused Republicans of foot-dragging, saying the need to make sweeping regulatory changes is as urgent as it was during the worst of the crisis.

Deputy Treasury Secretary Neal S. Wolin criticized "some on Wall Street, K Street and Capitol Hill" last month for trying to "slow down, roll back, or even repeal these crucial reforms."