THE UNCERTAINTY PRINCIPLE -- II
July 16, 2010
The Dodd-Frank financial reform bill passed by the Senate yesterday promises to generate historic levels of red tape. But apparently the 2,300 pages are so complicated that a debate has broken out over precisely how many new regulatory rule-makings it will require, says the Wall Street Journal.
According to an analysis by the Davis Polk & Wardwell law firm:
- At least 243 new federal rule-makings are on the way, not to mention 67 one-time studies and another 22 new periodic reports.
- The attorneys were careful to note that this was a low-ball estimate, counting only new regulations mandated by the bill.
Now comes Tom Quaadman of the U.S. Chamber of Commerce, who doesn't quarrel with the Davis Polk estimate but has added rule-makings authorized by this legislation to those that are mandated:
- He says American businesses should expect a whopping 533 new sets of rules.
- To put this number in perspective, Sarbanes-Oxley, Washington's last exercise in financial regulatory overreach, demanded only 16 new regulations.
- Thus he reasons that Dodd-Frank "is over 30 times the size of SOX."
Quaadman may be selling Dodd-Frank short, says the Journal. Neither his analysis nor the one from Davis Polk counts duplicative rule-makings, when various agencies create different rules governing the same activity, as they are empowered to do in various Dodd-Frank provisions.
While it might seem that the regulatory uncertainty created by the bill won't last much longer than a decade as new rules are implemented, that also could be optimistic. When regulators are granted new authorities without expiration dates on their powers, the rule-making possibilities are infinite, says the Journal.
The most likely result of Dodd-Frank in the near term is a generally higher cost of credit, and a bigger market share for the largest banks that can more easily absorb the new regulatory costs. In the longer term, do not expect it to prevent the next financial mania and panic, says the Journal.
Source: Editorial, "The Uncertainty Principle - II," Wall Street Journal, July 16, 2010.
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