Mercatus Scholar and former Congressional Staffer Hester Peirce has published an article discussing the ways in which Dodd-Frank expanded and enhanced the regulatory authority of the Board of Governors of the Federal Reserve System (“FRB”) over banking institutions, financial firms and their subsidiaries.
According to the article, Dodd-Frank gave the FRB new authority over several types of institutions, including:
- certain financial market utilities;
- institutions engaged in payment, clearing and settlement activities designated as systemically important by the Financial Stability Oversight Council (“FSOC”);
- nonbank firms “predominantly engaged in financial activities” that are designated as systemically important financial institutions by FSOC, including subsidiaries of these firms; and
- thrift holding companies, supervised securities holding companies and the subsidiaries of these entities.
The article also notes where Dodd-Frank removed FRB authority: primarily in its supervisory authority over consumer credit products, which was transferred to the newly created Bureau of Consumer Financial Protection (“CFPB”). The article outlines each of the changes in the FRB’s authority.
Lofchie Comment: While the focus of this article is on the FRB, Peirce makes plain that the financial regulatory structure of the country is convoluted. The most significant example of this is the dividing line between the SEC and the CFTC; e.g., the SEC regulates swaps on nine securities and the CFTC swaps on ten securities, depending on the weighting of the securities. These often arbitrary and overlapping lines of financial regulatory authority are endemic to our system. It results in enormous costs and inefficiencies: firms are subject to double and inconsistent regulation (every firm that operates as a security-based swap dealer registered with the SEC will also have to register as a swap dealer with the CFTC and SEC-registered investment advisers of any size are also CFTC-registered commodity trading advisors). Beyond that, these arbitrary dividing lines impede the ability of the government to manage effectively. It should be self-evident that the government’s ability to monitor fraud is hindered when one regulator is watching over swaps on securities generally, swaps on nine securities and options on securities indices, and another regulator is watching over swaps on ten securities.