The U.S. Government Accountability Office (“GAO”) issued a study describing the extent to which regulators responsible for adopting rules under Dodd-Frank conducted economic analysis of various rulemakings and the extent to which the regulators coordinated their rulemakings. The study also attempted to determine the benefits of Dodd-Frank.
GAO found that regulators coordinated on 34 of the 54 Dodd-Frank rulemakings reviewed. According to GAO, regulators face data and modeling challenges in their consideration of the costs and benefits of their rulemakings, particularly for more complex rules intended to address systemic risk or market stability.
Regarding the the Volcker Rule, GAO found that interagency coordination led regulators to adopt a common rule, and that regulators voluntarily coordinated efforts during the rule’s implementation. For swaps rulemakings, GAO found that regulators coordinated domestically and internationally; however, such coordination did not always result in harmonized rules, and key differences among some of the rules raised compliance and market efficiency concerns among market participants.
The report found that some updates in indicators suggest that large U.S. bank holding companies’ leverage decreased and liquidity improved since Dodd-Frank’s passage. Additionally, GAO’s updated regression analysis suggested that Dodd-Frank continued to have little effect on the funding costs of these companies, and may be associated with improvement in their “safety and soundness.”
Furthermore, the report found that although the margin rules for uncleared swaps have not been finalized, indicators suggest that holding companies have been requiring their counterparties to post a greater amount of collateral against derivatives contracts.
Lofchie Comment: The report contains good data, though there is a limited amount of useful information. For example, the report indicates that a regulator conducted a particular study, but does not discuss whether the study served a specific purpose. It is, therefore, difficult to assess whether the study represents anything more than a nod to a statutory obligation.
Generally, the GAO was able to combine a high degree of honesty with a gentle tone in critiquing the various regulators whose work it audited. The supporters of Dodd-Frank will find little in the report to suggest that the statute has been successful. The report indicates that the capital leverage ratio at banks improved for a variety of reasons, but it does not address whether the Dodd-Frank’s requirements (as opposed to just the presence of higher ratios) are sound economically. More negatively, the report suggests that the swaps regulations fragmented capital markets, to the detriment of both the United States and Europe. Likewise, the report suggests that the general level of economic analysis supporting Dodd-Frank rulemaking is fairly weak.