U.S. regulatory reform many questions remain: reducing systemic risk and closing gaps in regulatory enforcement were two pillars of the new federal legislation designed to toughen financial oversight. But are the law's objectives being met?

• Author: Beaumier, Carol
• Position: Governance

When U.S. Secretary of the Treasury Timothy Geithner, in testimony before the House Committee on Financial Services more than two years ago, first outlined the Obama administration's plans for regulatory reform of the financial services industry, be indicated that it would be based on four principles:

* Reducing systemic risk in the financial system;

* Protecting consumers and investors by providing "clear rules of the road that prevent manipulation and abuse;"

* Eliminating gaps in regulatory oversight that allow regulatory arbitrage and ineffective or uneven regulation of financial products and activities; and

* Fostering international coordination because risk does not stop at national borders.

After 17 months during which myriad proposals were proffered and debated, regulatory reform legislation--the Dodd-Frank Wall Street Reform and Consumer Protection Act--was signed into law on July 21, 2010. With implementation of the act under way for many months now, the following questions remain:

* Did the Obama administration accomplish its objectives?

* How did the financial services industry fare at the end of the debate?

* Are financial services industry customers better off because of the legislation?

* Who is going to pay for all of this?

* Will Dodd-Frank prevent the next crisis?

Before trying to answer these questions, it is important to note that the law, according to the U.S. Chamber of Commerce, requires regulatory agencies to pass 350 rules, conduct 47 studies and issue 74 reports. It also authorizes a number of new bodies or departments to oversee implementation and enforcement. To date, hundreds of pages of final rules have been published and more than 1,000 pages of proposed rules are pending. Completing all of the necessary rulemaking will take years.

In short, it will be some time before the questions posed above can be answered definitively, but some initial views based on information currently available are offered here.

Does Dodd-Frank Meet the Objectives?

The administration's platform for identifying and mitigating systemic risk initially called for, among other considerations:

1. Establishing a single regulatory body with responsibility over "systemically important" companies and over payment and settlement activities.

2. Selling higher standards for capital and risk management for systemically important companies.

3. Requiring all hedge funds above a certain size to register with the U.S. Securities and Exchange Commission.

4. ...