Dire Predictions For Wall Street Reforms: Not Complete Until 2013, Even Longer to Implement, Half May Not Survive

Speaking at the Council on Foreign Relations on May 2, Federal Reserve Governor Daniel K. Tarullo said he did not think that federal agencies would complete their rulemaking duties that are mandated under the Dodd-Frank Wall Street Reform and Consumer Protection Act until next year. He also said that full implementation of these rules would take even more time. Tarullo is in charge of overseeing efforts by the Fed to draft and execute these regulatory reforms.

He said that the process of completing the rules is a complicated one and challenges have inevitably arisen. To finish rulemaking duties sooner would likely have resulted in “inconsistencies and open questions” that would have inevitably led to “another round of changes.” Tarullo also spoke about how the complexities of certain US regulations have posed added challenges. For example, regulatory reforms must conform to the Basel Committee on Banking Supervision’s Basel III framework.

Tarullo also said that “instability” from the shadow banking system warrants a need for more regulatory reforms. He warned of new forms of shadow banking that could be lurking on the horizon especially if greater regulation of the large financial firms leads to elements of the shadow banking system going into “largely unregulated markets.”

Tarullo talked about how money market funds could prove especially problematic due to a mix of fixed net asset value, not enough absorption capacity, and the “propensity for institutional investors to run together.” He also said that reform was necessary in the tri-party repo market.

At another gathering this month, ex-Securities and Exchange Commission Chairman Arthur Leavitt voiced his thoughts about the Dodd-Frank Wall Street Reform and Consumer Protection Act and its mandates. Speaking on a panel at the Bloomberg Washington Summit, he said that he believed that less than half of the act would end up being implemented. Leavitt partially attributed this to efforts by Congress to impede the law. He criticized what he considered lawmakers’ efforts to hold back the reform act and cut regulators’ funding.

As an example, Leavitt pointed to the JOBS ACT, which looks to relieve capital formation and relaxes several securities regulations. It is key in undermining regulation. However, he described the JOBS Act as “the most investor-unfriendly bill” in the history of this nation. He also spoke about how because Congressional members have been forced to contend with a lot of pressure to “emasculate principal regulators,” these lawmakers have ended up hurting the Securities and Exchange Commission and the Commodity Futures Trading Commission when it comes to issues that are key to systemic risk.

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Governor Daniel K. Tarullo, Speech at the Board of Governors of the Federal Reserve System
Former SEC Chairman Levitt predicts less than half of Dodd-Frank will be implemented, Bloomberg/BNA, May 2, 2012
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SEC Chairman Says Commission Shouldn’t Impose Industry-Wide Bars On Offenders that Committed Misconduct Before Dodd-Frank Statute’s Enactment, Institutional Investor Securities Blog, April 16, 2012

FINRA May Put Forward Another Proposal About Possible SEC Rule Regarding Fiduciary Duty, Institutional Investor Securities Blog, November 28, 2011

AARP, Investment Adviser Association, Among Groups Asking the SEC to Make Brokers Abide by 1940 Investment Advisers Act’s Fiduciary Duty, Stockbroker Fraud Blog, April 14, 2012

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