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[On November 30, 2011, the list of congressional addressees on page 42
of this report was updated]
United States Government Accountability Office:
GAO:
Report to Congressional Addressees:
November 2011:
Dodd-Frank Act Regulations:
Implementation Could Benefit from Additional Analyses and Coordination:
GAO-12-151:
GAO Highlights:
Highlights of [hyperlink, http://www.gao.gov/products/GAO-12-151], a
report to congressional addressees.
Why GAO Did This Study:
The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-
Frank Act) requires or authorizes various federal financial regulators
to issue hundreds of rules to implement reforms intended to strengthen
the financial services industry. GAO is required to annually study
financial services regulations. This report examines (1) the regulatory
analyses, including cost-benefit analyses, financial regulators have
performed to assess the impact of selected final rules issued pursuant
to the Dodd-Frank Act; (2) how financial regulators consulted with each
other in implementing the selected final rules to avoid duplication or
conflicts; and (3) what is known about the impact of the final rules.
GAO examined the 32 final Dodd-Frank Act rules in effect as of July 21,
2011; the regulatory analyses conducted for 10 of the 32 rules that
allowed for some level of agency discretion; statutes and executive
orders requiring agencies to perform regulatory analysis; and studies
on the impact of the Dodd-Frank Act. GAO also interviewed regulators,
academics, and industry representatives.
What GAO Found:
Federal financial regulators are required to conduct a variety of
regulatory analyses, but the requirements vary and none of the
regulators are required to conduct benefit-cost analysis. All financial
regulators must analyze the paperwork burden imposed by their rules and
consider the impact of their rules on small entities as part of their
rulemaking process. The Commodity Futures Trading Commission and the
Securities and Exchange Commission are also required under their
authorizing statutes to consider certain benefits and costs of their
rules. As independent regulatory agencies, the federal financial
regulators are not subject to executive orders requiring federal
agencies to conduct detailed benefit-cost analysis in accordance with a
guidance issued by the Office of Management and Budget (OMB). Financial
regulators are not required to follow OMB’s guidance, but most told GAO
that they attempt to follow the guidance in principle or spirit. GAO’s
review of regulators’ rulemaking policies and 10 final rules found
inconsistencies in the extent to which OMB’s guidance was reflected.
GAO recommends that to the extent the regulators strive to follow OMB’s
guidance, they should take steps to more fully incorporate the guidance
into their rulemaking policies and ensure that it is consistently
followed.
Although federal financial regulators have coordinated their
rulemaking, they generally lacked formal policies to guide these
efforts. The Dodd-Frank Act establishes interagency coordination
requirements for certain agencies and for specific rules or subject
matters. However, for other rules, the regulators have discretion as to
whether interagency coordination should occur. The Financial Stability
Oversight Council (FSOC) is tasked with facilitating coordination among
member agencies but, to date, has played a limited role in doing so
beyond its own rulemakings as it continues to define its role. Several
regulators voluntarily coordinated with each other on some of the rules
GAO reviewed. However, most of the regulators, including the Bureau of
Consumer Financial Protection, lacked written protocols for interagency
coordination, a leading practice that GAO has previously identified for
interagency coordination. GAO recommends that FSOC work with the
financial regulators to develop such protocols for Dodd-Frank Act
rulemaking.
Little is known about the actual impact of the final Dodd-Frank Act
rules, given the short amount of time the rules have been in effect.
Regulators are required to conduct reviews of existing regulations to
assess their impact, but some have not yet developed plans to review
their Dodd-Frank Act rules. To maximize the usefulness of these
reviews, GAO recommends that the regulators identify what data will be
needed to retrospectively assess the impact of the rules in the future.
FSOC is also required to examine, among other things, financial market
and regulatory developments and make recommendations to enhance the
efficiency, competitiveness, and stability of U.S. financial markets.
Although FSOC officials said that FSOC plans to include an impact
analysis of the Dodd-Frank Act rules in its future reports, it has not
yet begun identifying and collecting the data needed for this type of
analysis. GAO recommends that FSOC direct the Office of Financial
Research, an entity created to support the research needs of FSOC, to
work with the regulators to identify and begin collecting data needed
for future analyses.
What GAO Recommends:
GAO is making four recommendations to the regulators and FSOC to
strengthen the prospective and retrospective analyses of the impact of
Dodd-Frank Act regulations on financial markets and improve
coordination among financial regulators on rulemaking. Regulators and
FSOC generally agreed with the report’s findings but most neither
agreed nor disagreed with the report’s recommendations.
View [hyperlink, http://www.gao.gov/products/GAO-12-151]. For more
information, contact A. Nicole Clowers at (202) 512-8678 or
clowersa@gao.gov
[End of section]
Contents:
Letter:
Background:
Requirements for Regulatory Analyses Vary, but Federal Financial
Regulators Are Not Required to Conduct Benefit-Cost Analysis:
Federal Financial Regulators Have Informally Coordinated Their
Rulemaking Efforts but Generally Lack Policies to Guide These Efforts:
It Is Too Early to Determine the Impact of Dodd-Frank Act Regulations,
but Opportunities for Future Analyses Exist:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Scope and Methodology:
Appendix II: Summary of Common Regulatory Analysis Requirements:
Appendix III: Dodd-Frank Act Rules Effective as of July 21, 2011:
Appendix IV: Case Studies of 10 Selected Rules:
Regulation of Off-Exchange Retail Foreign Exchange Transactions and
Intermediaries:
Designated Reserve Ratio:
Issuer Review of Assets in Offerings of Asset-Backed Securities:
Disclosure for Asset-Backed Securities Required by Section 943 of the
Dodd-Frank Wall Street Reform and Consumer Protection Act:
Conformance Period for Entities Engaged in Prohibited Proprietary
Trading or Private Equity Fund or Hedge Fund Activities:
Assessments, Large Bank Pricing:
Shareholder Approval of Executive Compensation and Golden Parachute
Compensation:
Retail Foreign Exchange Transactions:
Retail Foreign Exchange Transactions:
Exemptions for Advisers to Venture Capital Funds, Private Fund Advisers
with Less Than $150 Million in Assets Under Management, and Foreign
Private Advisers:
Appendix V: Comments from the Commodity Futures Trading Commission:
Appendix VI: Comments from the Consumer Financial Protection Bureau:
Appendix VII: Comments from the Federal Deposit Insurance Corporation:
Appendix VIII: Comments from the Board of Governors of the Federal
Reserve System:
Appendix IX: Comments from the Financial Stability Oversight Council:
Appendix X: Comments from the Office of the Comptroller of the
Currency:
Appendix XI: Comments from the Securities and Exchange Commission:
Appendix XII: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Primary Federal Banking Regulators and Their Basic Functions:
Table 2: Selected Elements of OMB's Circular A-4:
Abbreviations:
ABS: asset-backed securities:
APA: Administrative Procedure Act:
CFPB: Bureau of Consumer Financial Protection:
CFTC: Commodity Futures Trading Commission:
CRA: Congressional Review Act:
EGRPRA: Economic Growth and Regulatory Paperwork Reduction Act of 1996:
E.O.: executive order:
FCM: futures commission merchant:
FDIC: Federal Deposit Insurance Corporation:
FFIEC: Federal Financial Institutions Examination Council:
FSOC: Financial Stability Oversight Council:
NCUA: National Credit Union Administration:
NRSRO: nationally recognized statistical rating organization:
OCC: Office of the Comptroller of the Currency:
OIRA: OMB's Office of Information and Regulatory Affairs:
OMB: Office of Management and Budget:
OTS: Office of Thrift Supervision:
PRA: Paperwork Reduction Act:
RFA: Regulatory Flexibility Act:
RFED: retail foreign exchange dealers:
SEC: Securities and Exchange Commission:
SRO: self-regulatory organization:
UMRA: Unfunded Mandates Reform Act of 1995:
[End of section]
November 10, 2011:
Congressional Addresses:
The recent U.S. financial crisis is often described as the worst since
the Great Depression, resulting in the loss of trillions of dollars in
household wealth.[Footnote 1] The crisis threatened the stability of
the U.S. financial system and the solvency of some large financial
institutions, prompting the U.S. government to take extraordinary steps
to moderate the adverse economic impacts. In response to the crisis,
Congress passed the Dodd-Frank Wall Street Reform and Consumer
Protection Act (Dodd-Frank Act) in 2010, which includes numerous
reforms to strengthen oversight of financial services firms and
consolidate certain consumer protection responsibilities in the Bureau
of Consumer Financial Protection (CFPB).[Footnote 2] The Dodd-Frank Act
requires or authorizes various federal agencies to issue hundreds of
regulations to implement its reforms. As agencies have turned their
attention to developing and implementing these regulations, some
industry associations and others have raised concerns about the
potential impact of the regulations, individually and cumulatively, on
financial markets and both financial and nonfinancial institutions.
Agencies can anticipate and evaluate the consequences of their
regulations through regulatory analysis. Such analysis provides a
formal way of organizing evidence that can help in understanding
potential effects of new regulations. Benefit-cost analysis, the
primary tool used for regulatory analysis, helps to identify the
regulatory alternatives with the greatest net benefits. We, along with
the Office of Management and Budget (OMB) and others, have identified
benefit-cost analysis as a useful tool that can inform decision making
where agencies have discretion to choose between regulatory
alternatives, noting that the systematic process of determining costs
and benefits helps decision makers organize and evaluate information
about, and help identify trade-offs among, alternatives. Because of the
merits of benefit-cost analysis, many agencies are directed by statute
or executive order to conduct such analysis as part of rulemaking. For
example, Executive Order 12866 (E.O. 12866) requires executive agencies
to assess anticipated costs and benefits not only of the proposed
regulatory action but also of any alternatives.[Footnote 3] However,
this executive order does not apply to independent regulatory agencies,
including the banking, futures, and securities regulators (i.e.,
federal financial regulators).[Footnote 4]
Section 1573(a) of the Department of Defense and Full-Year Continuing
Appropriations Act of 2011 amends the Dodd-Frank Act and directs GAO to
conduct an annual study of financial services regulations, including
the activities of CFPB.[Footnote 5] Specifically, we are directed to
analyze (1) the impact of regulations on the financial marketplace,
including whether relevant federal agencies are applying sound benefit-
cost analysis in promulgating rules; (2) efforts to avoid duplicative
or conflicting rulemakings, information requests, and examinations; and
(3) other related matters that we deem to be appropriate.[Footnote 6]
As agreed with congressional staff, the focus of our current review and
future reviews will be limited to the financial regulations promulgated
pursuant to the Dodd-Frank Act, and for this first report, the Dodd-
Frank Act regulations that were effective as of July 21, 2011. This
report examines:
* the regulatory analyses, including benefit-cost analyses, that
federal financial regulators have performed to assess the potential
impact of selected final rules issued pursuant to the Dodd-Frank Act;
* consultation among federal financial regulators in implementing
selected final rules issued pursuant to the Dodd-Frank Act to avoid
duplication or conflicts; and:
* available information on the impact of the final Dodd-Frank Act
regulations.
To address these objectives, we reviewed all final rules--a total of
32--that were issued pursuant to the Dodd-Frank Act and were effective
as of July 21, 2011.[Footnote 7] We selected 10 of these for further
review and compared the analyses conducted to assess them in light of
the principles outlined in OMB Circular A-4.[Footnote 8] Circular A-4
provides guidance to federal agencies on the development of regulatory
analysis and was subject to public comment, interagency review, and
peer review. We selected the rules for further review based primarily
on the amount of discretion that agency officials were able to exercise
in implementing the specific Dodd-Frank Act provision. We interviewed
agency officials and reviewed documentation from the agencies to
determine the extent to which benefit-cost or similar analyses were
conducted. We also reviewed statutes, regulations, and other
documentation to identify the analysis federal financial regulators
were required to conduct and interviewed agency officials about their
plans to analyze the effects of their Dodd-Frank Act regulations.
Further, we identified requirements in the Dodd-Frank Act and other
laws for agency coordination on rulemaking and assessed the extent to
which such requirements were satisfied for select regulations that were
in effect as of July 21, 2011. We collected information from the
federal financial regulators on their policies and practices for
coordinating their rulemaking activities with other regulators and
about their coordination efforts specific to the selected Dodd-Frank
Act regulations that were effective as of July 21, 2011. We selected 18
rules based primarily on our judgment of the extent to which the rules
could overlap or duplicate rules issued by other agencies. We also
reviewed past GAO work on best practices for regulatory coordination
and compared the requirements for coordination among federal financial
regulators to these practices to identify any areas of needed
improvement.
To examine what is known about the impact of the Dodd-Frank Act
regulations, we reviewed existing research and interviewed financial
regulators, industry representatives, academics, and others. We also
collected information from the regulators on the extent to which the
Dodd-Frank Act rules effective as of July 21, 2011, could impact
certain variables (such as the safety and soundness of regulated
entities, cost and availability of credit, and costs of compliance with
the rules) or produce other costs and benefits. We examined the
indicators and data that federal financial regulators used, or planned
to use, to assess the impact of their regulations. We reviewed studies
on the impact of the Dodd-Frank Act regulations and assessed the
strengths and weaknesses of the impact analyses contained in these
studies. Appendix I contains additional information on our scope and
methodology.
This report does not independently assess the impact of the Dodd-Frank
Act regulations because (1) most of the required regulations have not
been finalized or the effective dates of finalized rules have not been
reached or (2) for the final regulations that have reached their
effective dates, adequate time has not elapsed to assess their impacts.
In addition to conducting audit work to address the objectives in this
report, we also began constructing a framework for our independent
analyses in future reports. While the construction of the framework
continues, it may include identifying and analyzing data to develop
indicators or other measures to assess the impact of the Dodd-Frank Act
regulations. Developing a methodology to assess the impact of Dodd-
Frank Act regulations will be a long-term, iterative process, during
which we will seek the input of federal financial regulators, the
industry, and other stakeholders.
We conducted this performance audit between April 2011 and November
2011, in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit
to obtain sufficient, appropriate evidence to provide a reasonable
basis for our findings and conclusions based on our audit objectives.
We believe that the evidence obtained provides a reasonable basis for
our findings and conclusions based on our audit objectives.
Background:
The financial services industry--including the banking, securities, and
futures sectors--has changed significantly over the last several
decades. Today, the industry generally consists of fewer and larger
firms that provide more and varied services, offer similar products,
and operate in increasingly global markets. Despite these changes, the
U.S. financial regulatory structure has largely remained the same. It
is a complex system of multiple federal and state regulators as well as
self-regulatory organizations (SRO) that operate largely along
functional lines, even as these lines have become increasingly blurred
in the industry. The U.S. regulatory system for financial services is
described as "functional" in that financial products or activities are
generally regulated according to their function, no matter who offers
the product or participates in the activity.[Footnote 9]
Depository Institution Regulators:
In the banking industry, the specific regulatory configuration depends
on the type of charter the banking institution chooses. Depository
institution charter types include:
* commercial banks, which originally focused on the banking needs of
businesses but over time have broadened their services;
* thrifts, which include savings banks, savings associations, and
savings and loans and were originally created to serve the needs--
particularly the mortgage needs--of those not served by commercial
banks; and:
* credit unions, which are member-owned cooperatives run by member-
elected boards with an historical emphasis on serving people of modest
means.
These charters may be obtained at the state or federal level. State
regulators charter institutions and participate in their oversight, but
all institutions that offer federal deposit insurance have a primary
federal regulator. The primary federal banking regulators--all of which
may issue regulations and take enforcement actions against industry
participants within their jurisdiction--are identified in table 1.
Table 1: Primary Federal Banking Regulators and Their Basic Functions:
Agency: Office of the Comptroller of the Currency (OCC);
Basic Function: Charters and supervises national banks and federal
thrifts.
Agency: Board of Governors of the Federal Reserve System (Federal
Reserve Board);
Basic Function: Supervises state-chartered banks that opt to be members
of the Federal Reserve System, bank holding companies, thrift holding
companies, and the nondepository institution subsidiaries of those
institutions.
Agency: Federal Deposit Insurance Corporation (FDIC);
Basic Function: Supervises FDIC-insured state-chartered banks that are
not members of the Federal Reserve System, as well as federally insured
state savings banks and thrifts; insures the deposits of all banks and
thrifts that are approved for federal deposit insurance; and resolves
all failed insured banks and thrifts and certain nonbank financial
companies.
Agency: National Credit Union Administration (NCUA);
Basic Function: Charters and supervises federally chartered credit
unions and insures savings in federal and most state-chartered credit
unions.
Source: GAO.
Note: The Dodd-Frank Act eliminated the Office of Thrift Supervision
(OTS), which chartered and supervised federally chartered savings
institutions and savings and loan holding companies. Rulemaking
authority previously vested in the OTS was transferred to the OCC for
savings associations and to the Federal Reserve Board for savings and
loan holding companies. Supervisory authority was transferred to the
OCC for federal savings associations, to the FDIC for state savings
associations, and to the Federal Reserve Board for savings and loan
holding companies and their subsidiaries, other than depository
institutions. The transfer of these powers was completed on July 21,
2011, and OTS was officially dissolved 90 days later (Oct. 19, 2011).
[End of table]
Securities and Futures Regulators:
The securities and futures industries are regulated under a combination
of self-regulation (subject to oversight by the appropriate federal
regulator) and direct oversight by the Securities and Exchange
Commission (SEC) and the Commodity Futures Trading Commission (CFTC),
respectively. SEC regulates the securities markets, including
participants such as securities exchanges, broker-dealers, investment
companies, and investment advisers. In the securities industry, certain
SROs--including the securities exchanges and the Financial Industry
Regulatory Authority--have responsibility for overseeing the securities
markets and their members; establishing the standards under which their
members conduct business; monitoring business conduct; and bringing
disciplinary actions against members for violating applicable federal
statutes, SEC's rules, and their own rules. SEC oversees SROs by
inspecting their operations and reviewing their rule proposals and
appeals of final disciplinary proceedings. In overseeing the SROs'
implementation and enforcement of rules, SEC uses its statutory
authority to, among other things, review and approve SRO-proposed rule
changes, approve or disapprove proposals that are subject to SEC action
before they can become operative, or suspend for additional proceedings
proposals that were designated by an SRO for immediate effectiveness.
In the futures industry, SROs include the futures exchanges and the
National Futures Association.[Footnote 10] Futures SROs are responsible
for establishing and enforcing rules governing member conduct and
trading; providing for the prevention of market manipulation, including
monitoring trading activity; ensuring that futures industry
professionals meet qualifications; and examining members for financial
strength and other regulatory purposes. CFTC independently monitors,
among other things, exchange trading activity, large trader positions,
and certain market participants' financial conditions.
Regulations and Federal Rulemaking:
Regulation is one of the principal tools that the federal government
uses to implement public policy. Section 553 of the Administrative
Procedure Act (APA) contains requirements for the most common type of
federal rulemaking--"informal rulemaking" or "notice and comment"
rulemaking.[Footnote 11] Most federal rulemaking is conducted as
informal rulemaking, in which agencies publish a notice of proposed
rulemaking in the Federal Register and provide "interested persons"
with an opportunity to comment on the proposed rule, generally for a
period of at least 30 days.[Footnote 12] Under the APA, in addition to
allowing for comments, an agency may choose to hold public hearings
during the comment period for informal rulemaking but is not required
to do so. After giving interested persons an opportunity to comment on
the proposed rule, and after considering the public comments, the
agency then publishes the final rule, incorporating a general statement
of the rule's basis and purpose. The APA's notice and comment
procedures do not apply to certain categories of rules, including
interpretative rules, general statements of policy, or rules that deal
with agency organization, procedure, or practice, or when the agency
for good cause finds that notice and public procedures thereon are
impracticable, unnecessary or contrary to the public interest. The APA
has been in place for more than 60 years, but most additional statutory
requirements for rulemaking have been imposed more recently.
As part of the rulemaking process, past and current Congresses and
Presidents have required agencies to comply with an increasing number
of procedural and analytical requirements before issuing a rule. Some
regulatory analysis requirements apply only to executive agencies,
while others also apply to independent regulatory agencies such as the
federal financial regulators. The goals of these requirements include
promoting public participation in rulemaking, reducing regulatory
burdens, requiring more rigorous regulatory analysis, and enhancing
oversight of agency rulemaking. These requirements entail a wide range
of procedural, consultative, and analytical actions on the part of the
agencies and are discussed in further detail in this report.
Dodd-Frank Act Regulations:
Under the Dodd-Frank Act, federal financial regulatory agencies are
directed or have the authority to issue hundreds of regulations to
implement the act's reforms. The Dodd-Frank Act directs agencies to
adopt regulations to implement the act's provisions and in some cases
gives the agencies little or no discretion in deciding how to implement
the provisions. For instance, the Dodd-Frank Act made permanent a
temporary increase in the FDIC deposit insurance coverage amount
($100,000 to $250,000); therefore, FDIC revised its implementing
regulation to conform to the change. However, other rulemaking
provisions in the act appear to be discretionary in nature, stating
that (1) certain agencies may issue rules to implement particular
provisions or that the agencies may issue regulations that they decide
are "necessary and appropriate," or (2) agencies must issue regulations
to implement particular provisions but have some level of discretion as
to the substance of the regulations. As a result, the agencies may
decide to promulgate rules for all, some, or none of the provisions,
and often have broad discretion to decide what these rules will
contain.
Requirements for Regulatory Analyses Vary, but Federal Financial
Regulators Are Not Required to Conduct Benefit-Cost Analysis:
As part of the rulemaking process, federal financial regulatory
agencies are required to conduct a variety of regulatory analyses, but
benefit-cost analysis is not among the requirements. Requirements
include those set out in the Paperwork Reduction Act (PRA) and the
Regulatory Flexibility Act (RFA), which impose regulatory analysis
requirements on federal agencies, including the federal financial
regulators.[Footnote 13] In particular, PRA requires agencies to
justify any collection of information from the public to minimize the
paperwork burden the collection imposes and to maximize the practical
utility of the information collected.[Footnote 14] Under PRA, agencies
are required to submit all proposed information collections to OMB's
Office of Information and Regulatory Affairs (OIRA) for review and
approval.[Footnote 15] As a result of PRA, agencies also estimate the
time and expense required to comply with the paperwork requirements
contained in the rule. RFA requires federal agencies to (1) assess the
impact of their regulation on small entities, including businesses,
governmental jurisdictions, and certain not-for-profit organizations
with characteristics set forth in the act, and (2) consider regulatory
alternatives to lessen the regulatory burden on small
entities.[Footnote 16] Under RFA, federal agencies, including federal
financial regulators, generally must prepare a "regulatory flexibility
analysis" in connection with proposed and certain final rules, unless
the head of the issuing agency certifies that the proposed rule would
not have a significant economic impact upon a substantial number of
small entities.[Footnote 17] While both PRA and RFA require agencies to
assess various impacts of their rules, they do not require the agencies
to formally assess the costs and benefits of their rules through a
benefit-cost or similar analysis. See appendix II for more information
about these and other statutes.
In addition to these generic requirements, certain federal financial
regulators are required by their authorizing or other statutes to
consider specific benefits, costs, and impacts of their rulemaking.
However, as described below, these statutes require the regulators to
consider certain benefits, costs, and impacts of their regulations, but
the statutes do not prescribe a specific methodology for benefit-cost
or similar analyses.
* Under Section 15(a) of the Commodity Exchange Act, CFTC is required
to consider the costs and benefits of its actions before issuing a
rulemaking under the act.[Footnote 18] Section 15(a) does not require
CFTC to quantify the costs and benefits of a new regulation or
determine whether the benefits outweigh its costs; rather, it requires
CFTC to consider the costs and benefits of its actions. Section 15(a)
further specifies that costs and benefits be evaluated in light of five
broad areas of market and public concern: (1) the protection of market
participants and the public; (2) the efficiency, competitiveness, and
financial integrity of futures markets; (3) price discovery; (4) sound
risk management practices; and (5) other public interest
considerations.
* Under section 1022(b) of the Consumer Financial Protection Act (Title
X of the Dodd-Frank Act), CFPB must consider the potential benefits and
costs to consumers and providers of consumer financial products and
services, including any potential reduction in consumers' access to
consumer financial products or services that might result from the
rule, as well as the impact of proposed rules on depository
institutions and credit unions with $10 billion or less in assets and
consumers in rural areas.[Footnote 19] In addition, under section
1100G(d)(1) of the Dodd-Frank Act, CFPB is required to include in its
initial regulatory flexibility analysis a description of any projected
increase in the cost of credit for small entities and any significant
alternatives to the proposed rule that accomplish the same objectives
but minimize any increase in the cost of credit for small
entities.[Footnote 20]
* The National Securities Market Improvement Act of 1996, which amended
the Securities Act of 1933, Securities Exchange Act of 1934, and
Investment Company Act of 1940, requires SEC, when engaged in
rulemaking that requires it, to consider or determine whether an action
is necessary or appropriate to the public interest, to consider, in
addition to the protection of investors, whether the action will
promote efficiency, competition, and capital formation during the
rulemaking process.[Footnote 21] Additionally, Section 23(a)(2) of the
Securities Exchange Act requires SEC to consider the impact that any
rule promulgated under the act would have on competition.[Footnote 22]
This provision states that a rule should not be adopted if it would
impose a burden on competition that is not necessary or appropriate to
the act's purposes.
* Section 302 of the Riegle Community Development and Regulatory
Improvement Act requires federal banking regulators to consider certain
factors in determining the effective date and administrative compliance
requirements for new regulations that impose additional reporting,
disclosure, or other requirements on insured depository
institutions.[Footnote 23] These factors include any administrative
burdens the regulations would place on depository institutions,
including small depository institutions and customers of depository
institutions and the benefits of the regulations.
In addition to statutory requirements, certain executive orders, namely
E.O. 12866, require some federal agencies to assess the economic
effects of their significant rules.[Footnote 24] However, the federal
financial regulators, as independent regulatory agencies, are not
subject to the economic analysis requirements of E.O. 12866.[Footnote
25] The order contains 12 principles of regulation that direct agencies
to perform specific analyses to identify the problem to be addressed,
assess its significance, assess both the costs and benefits of the
intended regulation, design the regulation in the most cost-effective
manner to achieve the regulatory objective, and base decisions on the
best reasonably obtained information available. In 2003, OMB issued
Circular A-4 to provide guidance to federal agencies on the development
of regulatory analysis required by E.O. 12866 (now supplemented by
Executive Order 13563 (E.O. 13563)).[Footnote 26] The guidance defines
good regulatory analysis and standardizes the way benefits and costs of
federal regulatory actions should be measured and reported. In
particular, the guidance provides for more systematic evaluation of
qualitative and quantitative benefits and costs, including how to
monetize them (fig. 1).[Footnote 27] OMB subjected its guidance to
public comment, interagency review, and peer review. Although federal
financial regulatory agencies are not required to follow E.O. 12866 or
OMB Circular A-4, CFTC, Federal Reserve Board, FDIC, NCUA, OCC, and SEC
officials have said that their agencies follow OMB's guidance in spirit
or principle. CFPB officials also said that the Bureau expects to
follow the spirit of OMB's guidance.
Table 2: Selected Elements of OMB's Circular A-4:
According to OMB Circular A-4, a good regulatory analysis should
include the following three basic elements: (1) a statement of the need
for the proposed action, (2) an examination of alternative approaches,
and (3) an evaluation of the benefits and costs--quantitative and
qualitative--of the proposed action and the main alternatives
identified by the analysis.
To evaluate properly the benefits and costs of regulations and their
alternatives, the regulatory analysis should:
* Explain how the actions required by the rule are linked to the
expected benefits. A similar analysis should be done for each of the
alternatives;
* Identify a baseline. Benefits and costs are defined in comparison
with a clearly stated alternative;
* Identify the expected undesirable side-effects and ancillary benefits
of the proposed regulatory action and the alternatives;
A complete regulatory analysis includes a discussion of nonquantified
and quantified benefits and costs. When the analysis is complete, the
analysis should present a summary of the benefit and cost estimates for
each alternative, including the qualitative and nonmonetized factors
affected by the rule, so that readers can evaluate them.
In developing benefit and cost estimates, Circular A-4 recommends that
the analysis (1) include separate schedules of the monetized benefits
and costs that show the type and timing of benefits and costs, and
express the estimates in constant, undiscounted dollars; (2) list the
benefits and costs that can be quantified, but not monetized, including
their timing; (3) describe benefits and costs that cannot be
quantified; and (4) identify or cross-reference the data or studies on
which the agency bases the benefit and cost estimates.
Circular A-4 recommends specific methods for developing monetary and
quantitative information about benefits and costs of regulations, as
well as methods for evaluating nonmonetized benefits and costs.
Monetizing is an important feature of benefit-cost analysis because it
allows regulators to evaluate different regulatory options with a
variety of attributes using a common measure. When a benefit or cost
cannot be expressed in monetary units, OMB's guidance encourages
agencies to measure it quantitatively, in terms of its physical units.
Monetizing or quantifying the benefits and costs of regulatory
approaches may not be possible. In such cases, Circular A-4 encourages
presentation of qualitative information on benefits and costs,
including discussion of the strengths and limitations of the
qualitative information.
Source: OMB Circular A-4.
[End of table]
More Consistently Incorporating OMB Guidance Could Improve the
Transparency and Rigor of Regulators' Analyses:
As required by statute and internal policies, federal financial
regulators conducted a variety of regulatory analyses as part of their
Dodd-Frank Act rulemakings. We reviewed the regulators' rulemaking
policies and procedures and found that they provided guidance
consistent with their statutory requirements, such as PRA and RFA. In
this regard, our findings are consistent with the recent findings of
the Inspectors General of CFTC, the Federal Reserve Board, the
Department of Treasury (for OCC), FDIC, and SEC.[Footnote 28] At the
request of 10 members of the U.S. Senate Committee on Banking, Housing,
and Urban Affairs, these Inspectors General reviewed the economic
analyses done by their agencies for several proposed Dodd-Frank Act
rules. They found that the agencies largely followed the statutory and
other requirements applicable to their rulemaking and related economic
analysis.
Although most of the federal financial regulators told us that they
tried to follow Circular A-4 in principle or spirit, their policies and
procedures did not fully reflect OMB guidance on regulatory analysis.
For example, FDIC, the Federal Reserve Board, OCC, and NCUA all have
general policies that reflect the broad regulatory analysis principles
associated with Circular A-4--such as determining the need for a
regulation and examining alternative approaches. CFTC's and SEC's
policies also include examples of benefit-cost analysis that reflect
statutory requirements to consider certain types of benefits and
costs.[Footnote 29] However, the regulators' policies generally do not
fully address the information challenges that regulators encounter as
they draft regulations, as such challenges are addressed by Circular A-
4. In general, the regulators' policies did not include the level of
detail or instruction found in Circular A-4 for carrying out regulatory
analyses. As noted, these regulators are not subject to the economic
analysis requirements of E.O. 12866 or 13563 and, in turn, the OMB
guidance. Importantly, the guidance serves as best practices for
conducting regulatory analysis and, thus, provides an objective basis
for identifying areas where the regulators could improve their policies
and procedures as well as the quality of their regulatory analyses.
Federal financial regulators had limited or no discretion in connection
with the majority of the Dodd-Frank Act rules that we reviewed. Twenty-
one of the 32 final rules that were effective as of July 21, 2011, are
mandatory--that is, the Dodd-Frank Act directed the agencies to adopt
regulations containing substantive provisions specified by the statute.
As a result, the agencies were provided with little or no discretion as
to whether or how to implement these statutory provisions. For
instance, the Dodd-Frank Act eliminated the prohibition against payment
of interest on demand deposit accounts, requiring FDIC and the Federal
Reserve Board to repeal certain regulations to reflect the statutory
change. Eleven of the final rules provided the regulators with some
level of discretion in implementation.[Footnote 30] Three of the rules
were identified by the regulators as "major" rules that could have a
$100 million or more annual impact on the economy and would thus, as
significant regulatory actions, be subject to formal benefit-cost
analysis under E.O. 12866 if the relevant agencies were required to
follow it.[Footnote 31] See appendix III for information about the 32
Dodd-Frank Act rules that were effective as July 21, 2011.
Through our review of the regulatory analyses conducted by federal
financial regulators for their Dodd-Frank Act regulations, we found
areas where such analyses could have been improved if the regulators
had applied OMB's guidance more fully. We reviewed 10 of the final
rules that allowed for some level of discretion on the part of the
regulator.[Footnote 32] Each of the 10 regulations included a
discussion of the regulatory analyses the agencies performed to comply
with RFA and PRA. For most of the regulations, the regulators concluded
that the regulation would not have a "significant economic impact" on
small businesses per RFA. For instance, some regulations covered a line
of business (e.g., retail foreign exchange) in which no small entities
were engaged. One RFA analysis identified cost savings for small
businesses as a result of the rule. The regulators also identified the
information collection requirements that their rules would impose on
regulated entities, per PRA. For one PRA analysis the agency monetized
the costs of providing required information and five other analyses
quantified the hours needed to provide that information. In particular,
two rules promulgated by SEC had information collection requirements
that were essential to the rule. For those rules, SEC considered
alternative requirements for regulated entities and provided reasons
for choosing the alternative selected. For an OCC rule, a separate
impact analysis was conducted to determine whether the rule would have
an annual cost of $100 million or more, in accordance with the Unfunded
Mandates Reform Act and the Congressional Review Act. (See app. II for
information about these statutory requirements.)
For each of the 10 regulations, we found that the regulators identified
the problem that the regulation was intended to address and, in 6
cases, assessed the problem's significance. In addition, we found that
the regulators used the statutory discretion allowed to examine
reasonable alternatives. In many instances, they requested public
comments on specific elements of the regulation and then examined
alternative regulatory approaches in the context of responding to the
comments. Most of the regulations also considered different compliance
dates for enforcement to begin. For example, one agency found that its
regulation would impact municipalities and thus provided a transition
period for compliance of over 3 years for municipal entities.
For 7 of the 10 regulations we reviewed, the agencies generally
assessed benefits and costs of the alternative chosen. Specifically,
SEC and CFTC analyzed the benefits and costs of their regulations and
FDIC included discussions of benefits and costs in response to comments
about specific elements of its regulations. As recommended by OMB's
guidance, the analyses generally included:
* descriptions of the benefits and costs that accrue to U.S. citizens
and residents,
* descriptions of the benefits and costs measured against a baseline,
* descriptions of the reasons for choosing among reasonable
alternatives,
* descriptions of the benefits and costs that could not be monetized or
quantified, and:
* cross-references to data or studies on which the analysis was based.
While these aspects of the regulators' benefit-cost analyses were
consistent with OMB's guidance, other aspects of the analyses were not.
In particular, one of the seven benefit-cost analyses monetized the
costs of the regulation, but the analysis did not monetize the
benefits. None of the other analyses monetized either the benefits or
costs, identified the type and timing of them, or expressed them in
constant dollars. According to Circular A-4, monetizing allows
regulators to evaluate different regulatory options using a common
measure. When it is not possible to monetize a benefit or cost, OMB's
guidance encourages agencies to measure it quantitatively, in terms of
its physical units. Two of the seven benefit-cost analyses quantified
the benefits and costs of the regulation that could not be monetized;
the remaining five regulations that assessed benefits and costs did not
attempt to quantify either the benefits or the costs. When it is not
possible to measure benefits and costs monetarily or quantitatively,
OMB guidance instructs agencies to present qualitative information on
benefits and costs, including a discussion of the strengths and
limitations of the qualitative information. However, none of the
benefit-cost analyses of the federal financial regulators that we
reviewed either explained why benefits and costs could not be monetized
or quantified or discussed the strengths and limitations of the
available qualitative information. In addition, only two of the seven
benefit-cost analyses looked beyond direct benefits and costs and
considered any important ancillary benefits, costs, and countervailing
risks, as recommended by OMB guidance. Without monetized or quantified
benefits and costs, or an understanding of the reasons they cannot be
monetized or quantified, it is difficult for businesses and consumers
to determine if the most cost-beneficial regulatory alternative was
selected or to understand the limitations of the analysis performed.
See appendix IV for more information about the regulatory analysis,
including the benefit-cost analysis, of the 10 regulations that we
reviewed.
Although federal financial regulators said that they followed OMB's
guidance in spirit or principle, we found areas where regulators could
have improved their regulatory analyses by applying OMB's guidance more
fully. As a result, regulators may be missing an opportunity to enhance
the rigor and improve the transparency of their analyses. The current
administration has made efforts to encourage federal financial
regulatory agencies to conduct more rigorous analysis of financial
regulations. For instance, in July 2011, the President signed E.O.
13579 to encourage independent regulatory agencies to comply with E.O.
13563 (which supplements E.O. 12866) and enhance the rigor and
transparency of their analyses. In addition, in its 2011 annual report
to Congress, OMB emphasized that better information on the benefits and
costs of the rules issued by independent regulatory agencies would help
in informing the public and obtaining a full accounting of the rules'
benefits and costs. OMB reported that the absence of such information
was a continued obstacle to transparency and might have adverse effects
on public policy.
Stakeholders Cited Weaknesses in Past and Current Regulatory Analyses
but also Recognized the Challenges These Analyses Presented:
Academics, policy analysts, and stakeholders from industry groups have
noted a number of concerns with regulatory analyses of the regulations
issued pursuant to the Dodd-Frank Act. For example, representatives
from industry and consumer associations said that the regulatory
analyses done to date for the proposed and finalized Dodd-Frank Act
regulations generally focused on measuring the costs associated with
data collection and did not provide information on the possible impact
of regulations on the behavior of businesses and consumers. While they
were critical of the analyses conducted, the representatives also
recognized that the regulators faced challenges in producing meaningful
regulatory analyses, in part because of tight time frames for issuing
regulations and the lack of available data.
Further, some academics and policy analysts have argued that benefit-
cost analyses of financial regulations have not been as rigorous as
those done for other regulations. Specifically, a review of financial
regulations by one analyst led him to conclude that "the nation's
financial regulators ha[d] largely failed to perform the rigorous
analysis required of most other government agencies, especially those
in the fields of health, safety, and environmental
regulation."[Footnote 33] Other policy analysts concluded that
regulatory analyses by independent regulatory agencies, including some
federal financial regulators "generally do not analyze economic effects
in a manner intended to meet any identifiable standards for such
analysis."[Footnote 34] However, an academic with whom we spoke stated
that additional cost-benefit analysis requirements will provide only a
marginal increase in value; instead, according to the academic, the
goal should be to accomplish regulatory objectives at minimum cost. As
we have reported, the difficulty of reliably estimating the costs of
regulations to the financial services industry and the nation has long
been recognized, and the benefits of regulation generally are regarded
as even more difficult to measure.[Footnote 35] This situation presents
challenges for regulators attempting to estimate the anticipated costs
of regulations and also for industries seeking to substantiate claims
about regulatory burdens. For example, while compliance costs of
financial regulations can usually be estimated and measured, the
economic costs of transactions foregone as the result of regulation can
be more difficult to anticipate and measure.
Other entities have also identified shortcomings in some of the
regulators' benefit-cost analyses. For example, the United States Court
of Appeals for the District of Columbia Circuit determined that SEC
failed to adequately assess the economic aspects of a
regulation.[Footnote 36] In addition, in the spring of 2011, the CFTC
Inspector General found that for four rules it examined, CFTC generally
adopted a "one size fits all" approach without giving significant
regard to the deliberations addressing idiosyncratic cost and benefit
issues that were shaping each rule.[Footnote 37] CFTC has since revised
its staff guidance on cost-benefit considerations for Dodd-Frank Act
rulemakings and provided guidance to address the recommendations of the
Inspector General.
Finally, many federal financial regulators told us that it could be
challenging to obtain the best economic information available to
conduct their regulatory analyses in a timely manner. For example, a
regulator stated that much of the information is held by regulated
entities and considered proprietary, and neither the regulators nor the
regulated entities want the information made public during the public
rulemaking process. Also, some regulators note that PRA limits their
ability to request information outside of the public rulemaking process
from ten or more entities at a time unless OMB does an extensive review
of and approves the request.[Footnote 38] Furthermore, given the time
constraints for performing regulatory analysis for Dodd-Frank Act
regulations, a regulator said that the time required to complete an OMB
review could preclude them from being able to pursue information
outside the rulemaking process.
Federal Financial Regulators Have Informally Coordinated Their
Rulemaking Efforts but Generally Lack Policies to Guide These Efforts:
The Dodd-Frank Act requires or authorizes the federal financial
regulators to promulgate hundreds of rulemakings. Some of these rules
will be issued jointly by multiple agencies and thus require
interagency coordination. Other rules will be issued separately by
regulators but, in some cases, cover similar subject matter, creating
the potential for overlap or duplication. For instance, authority for
developing and adopting regulations to implement Section 619, also
known as the Volcker Rule, is divided among the CFTC, FDIC, the Federal
Reserve Board, OCC, and SEC.[Footnote 39] While the Dodd-Frank Act does
not require all of the regulators to issue a joint rulemaking on the
Volcker Rule, it does require that the regulators consult and
coordinate with each other, in part to ensure that their regulations
are comparable. In general, coordination among federal agencies takes
place when two or more agencies engage in joint activities in an effort
to reduce duplication or overlap in programs and regulations. Such
efforts may not only ease the burden of compliance on industry but also
reduce market participants' uncertainty about the future functioning of
financial markets. Joint activities can range from required interagency
meetings during a joint rulemaking to voluntary informal discussions
among colleagues across different agencies engaged in similar efforts.
In sum, effective coordination could help agencies minimize or
eliminate staff and industry burden, administrative costs, conflicting
regulations, unintended consequences, and uncertainty among consumers
and markets.
Although the Dodd-Frank Act Requires Coordination, the Extent and
Nature of Coordination Varies across Regulators and Rules:
The Dodd-Frank Act includes a number of both agency-specific and rule-
specific coordination and consultation requirements.[Footnote 40] For
example, it imposes specific interagency coordination and consultation
requirements and responsibilities for the Financial Stability Oversight
Council (FSOC) and CFPB.
* Title I of the Dodd-Frank Act creates FSOC to, among other things,
identify potential threats to the financial stability of the United
States and make recommendations to primary functionary regulatory
agencies to apply certain supervisory standards.[Footnote 41] Title I
imposes a broad responsibility on FSOC to facilitate interagency
coordination by facilitating information sharing and coordination among
its member agencies and other federal and state agencies on the
development of financial services policy, rulemaking, examinations,
reporting requirements, and enforcement actions.[Footnote 42]
* Title X of the Dodd-Frank Act requires CFPB to consult with the
appropriate prudential regulators or other federal agencies, both
before proposing a rule and during the comment process, regarding
consistency with prudential, market, or systemic objectives
administered by such agencies. CFPB must also publish any written
objections to a proposed rule by a prudential regulator when the rule
is adopted, along with an explanation of its decision to accept or
reject the objection.[Footnote 43] In addition, FSOC can set aside a
final regulation prescribed by CFPB with a two-thirds vote if it
decides that the regulation or provision would put the safety and
soundness of the banking system or the stability of the financial
system at risk. While not a specific coordination requirement, this
requirement will also serve to encourage CFPB to coordinate its
rulemaking with other regulators.
The Dodd-Frank Act does not subject any of the other federal financial
regulators to similar overarching coordination requirements, but it
does impose rule-specific coordination or consultation requirements.
For example, it requires regulators to engage in a number of joint
rulemakings, implicitly requiring them to coordinate with each other.
It also includes provisions that explicitly require the regulators to
coordinate or consult with each other when promulgating a specific rule
or related rules dealing with a particular subject matter. Examples of
such coordination and consultation requirements rules include the
following:
* Title I includes a number of consultation or coordination
requirements. For example, FSOC is required to consult with the primary
financial regulatory agency, if any, before designating a nonbank
financial company as systemically important. FSOC must also consult
with relevant members before imposing prudential standards or other
requirements that are likely to have a "significant impact" on a
functionally regulated subsidiary or depository institution subsidiary
of a systemically important company.[Footnote 44] Before imposing
prudential standards or other requirements likely to have a significant
impact on a subsidiary of a non-bank financial company or of certain
bank holding companies supervised by the Federal Reserve Board, the
Federal Reserve Board must consult with each FSOC member that primarily
supervises any such subsidiary with respect to such standards or
requirements. Finally, the Federal Reserve Board also is required to
consult with FSOC and FDIC on setting requirements to provide for early
remediation of financial distress of a nonbank financial company that
it supervises or a bank holding company with total consolidated assets
equal to or greater than $50 billion.
* Title II of the Dodd-Frank Act requires FDIC, in consultation with
FSOC, to adopt such rules it deems necessary or appropriate to
implement the orderly liquidation authority process.[Footnote 45]
* Title VII of the Dodd-Frank Act creates a regulatory regime for the
over-the-counter swaps markets. Under this title, SEC and CFTC are
required to coordinate and consult with each other and any relevant
prudential regulators before commencing rulemaking on swaps or swap-
related subjects, for the express purpose of assuring regulatory
consistency and comparability across the rules or orders.[Footnote 46]
* Title VIII of the Dodd-Frank Act includes a requirement that CFTC and
SEC coordinate with FSOC and the Federal Reserve Board for any
regulations they decide to issue regarding risk management supervision
programs for designated clearing entities.
Regulators Coordinated Some of the Final Rules but Generally Lack
Policies and Procedures to Guide Coordination Efforts:
Of the 18 final rules that we reviewed to assess interagency
coordination, federal regulators told us that they coordinated with
other regulators on 9 of the rulemakings.[Footnote 47] Two of the rules
required interagency coordination under the Dodd-Frank Act, but none of
the other 16 rules were joint rules or specifically required
interagency coordination.[Footnote 48] Regulators told us that the
importance of coordination was established early on by their senior
leadership, who met shortly after the passage of the Dodd-Frank Act to
identify and discuss areas in which interagency coordination could be
useful and establish interagency working groups or points of contacts
where necessary. For the two rules that required interagency
coordination, SEC staff told us that they met with staff from other
agencies and provided them with rule-related materials for their review
and comment. The staff said that they did not receive any substantive
comments and noted that the rules did not potentially duplicate or
conflict with any of the other agencies' rules. While regulators were
not required to coordinate on any of the other 16 rules that we
reviewed--for example, because the rules were administrative or fell
within the exclusive purview of a single regulator--they chose to
coordinate or consult with other regulators on seven rules for a
variety of reasons. For instance, Section 343 of the Dodd-Frank Act
amended the Federal Deposit Insurance Act to provide unlimited deposit
insurance for "noninterest-bearing transaction accounts" for a 2-year
period. Before issuing its rule to adopt this requirement, FDIC staff
told us they had held informal discussions with Federal Reserve Board
staff about whether certain types of payments to depositors qualified
as interest. FDIC staff told us that no other consultation took place,
given that the scope of the proposed rule was minimal. For rules that
raised some concerns about duplication or conflict, however,
coordination was broader in scope. For example, CFTC, FDIC, and OCC
issued separate rules to regulate off-exchange foreign exchange
transactions that their regulated entities entered into with retail
customers. OCC staff told us that the regulators--including CFTC,
Federal Reserve Board, FDIC, NCUA, and SEC--had voluntarily consulted
one another before issuing the rule.
In discussing the ways in which they had coordinated with other
regulators on rulemakings to date, regulators generally described
informal processes. For example, to help facilitate coordination, a
number of the regulators said that they had identified points of
contact at other regulators for specific rules. They used those points
of contact to solicit comments on draft proposed rules or obtain other
information and data through e-mail or phone calls. Similarly, CFPB
staff also said that they had informally consulted with other
regulators on rulemaking through conference calls and by sharing
portions of draft rules for review.
Although federal financial regulators informally coordinated with each
other on some of the final rules that we reviewed, most of the
regulators lacked written policies and procedures to facilitate
interagency coordination. Specifically, seven of nine regulators
included in our review did not have written policies and procedures to
facilitate coordination on rulemaking. For example, CFPB is in the
process of developing policies and procedures for coordination on
rulemaking, including how to resolve jurisdictional or other
disagreements in rulemaking. As noted earlier, CFPB is required to
consult with the appropriate prudential regulators or other federal
agencies both before proposing a rule and during the comment process.
According to CFPB officials, the Bureau is considering various
coordination issues and working to establish policies or procedures to
facilitate coordination. CFPB officials noted that they were still
setting up CFPB and that many decisions, including how CFPB would
coordinate with other regulators, remained to be determined. The
officials also said that CFPB was committed to fulfilling the
coordination requirements set for it in the Dodd-Frank Act.
Moreover, the written policies and procedures that do exist are limited
in their scope or applicability. FDIC and OCC are the only two of the
nine regulators that have rulemaking policies that include guidance on
developing interagency rules. For example, FDIC's policy manual for
developing rules includes a section on developing an interagency rule
or statement of policy that describes the roles and responsibilities of
the agencies in the process. Similarly, OCC's rulemaking procedures
manual includes guidance on interagency rulemakings and outlines, among
other things, how staff will be designated to represent OCC in such
rulemakings and the responsibilities of the designated staff. However,
neither FDIC's nor OCC's policies describe the process for soliciting
and addressing other regulators' comments, including conflicting views.
Other regulators have procedures in place that could facilitate
coordination, but these procedures are also limited. For instance, FSOC
has developed a consultation framework that provides timeframes for
holding initial meetings to discuss potential approaches to regulation
and circulating term sheets and proposals to enact the regulation.
However, the framework applies only to rules for which consultation
with FSOC is required. Additionally, SEC and CFTC have a memorandum of
understanding that establishes a permanent regulatory liaison between
them and contains procedures to facilitate the discussion and
coordination of regulatory action on issues of common regulatory
interest, such as novel derivative products.[Footnote 49] Such
regulatory actions can include investigations, examinations, and
individual rulemakings.
Documented policies can help ensure that adequate coordination takes
place and help to improve interagency relationships, prevent the
duplication of efforts at a time when resources are extremely limited,
and avoid the potential for disruptions across financial markets caused
by regulatory uncertainty. In prior work, we have identified the
establishment of compatible policies and procedures to allow for
efficiency of operations across agency boundaries as a best practice
for sustaining and enhancing collaborative efforts across federal
regulatory agencies.[Footnote 50] As we have previously reported, the
lack of compatible standards, policies, and procedures can hinder
collaboration. Given the breadth and scope of the Dodd-Frank Act
rulemakings, having documented policies and procedures for interagency
coordination is especially important to avoid conflicting or
duplicative rules.
The Nature of FSOC's Involvement in the Rulemaking Process Has Been
Evolving:
While FSOC continues to evolve and define its role, FSOC staff noted
that its organizational structure helps ensure coordination among its
member agencies. First, because FSOC is made up of all the federal
financial regulators and other entities, and the regulators are all
voting members, it is an interagency body by definition and takes
actions on that basis. Second, FSOC staff told us that the council has
established committees and subcommittees to help carry out its
responsibilities and authorities, further promoting interagency
coordination.[Footnote 51] These groups are comprised of staff from
FSOC member agencies and can facilitate informal coordination outside
of FSOC's explicit coordination requirements. For example, the Systemic
Risk Committee identified mortgage servicing as a key issue that had
interagency implications and was able to get staff from the relevant
agencies to work together to prioritize this as a recommended area for
regulatory action in the annual report, according to FSOC staff. Third,
as FSOC Chairperson, the Secretary of the Treasury can also promote
coordination among member agencies. In its 2010 annual report, FSOC
noted that its chairperson was playing an active role in coordinating
the agencies' work to draft consistent and comparable regulations to
implement the proprietary trading and the joint risk retention rules,
as required under the Dodd-Frank Act.
In addition to its organizational structure, FSOC also has developed
tools to facilitate formal coordination and promote informal
coordination among its members. For example, FSOC has developed a
consultation framework for the rulemakings for which consultation with
FSOC is required. The framework establishes time frames for
coordinating three key tasks in these rulemakings: initial interagency
meetings, circulation of term sheets for interagency comments, and
circulation of proposed rules for interagency comments. In addition, in
October 2010 FSOC issued an integrated implementation roadmap for the
Dodd-Frank Act that included a comprehensive list of the rules
regulators were required to promulgate, provided a timeline for those
rulemakings, and identified the agencies responsible for each
rulemaking.
Although these tools are a positive development in facilitating
coordination, they have limited usefulness. For example, although the
FSOC consultation framework specifies the time frames for completing
major milestones in rulemakings for which consultation with FSOC is
required, it does not provide any specifics about staff
responsibilities or the processes to be used to facilitate
coordination, and FSOC staff told us the framework is not intended to
do so. It also applies only to coordination between FSOC and member
agencies. Also, the roadmap does not discuss coordination among member
agencies. For example, the extent to which interagency coordination is
required or what happens when rulemakings conflict with or duplicate
each other is not mentioned. Representatives from industry associations
told us that FSOC's coordination efforts in their view generally had
not been useful and should be strengthened. For example, according to
industry representatives, FSOC has not used its position to help
agencies sequence the rules in a logical order to give industry the
ability to comment on the rules in a meaningful way.
Another coordination body in the federal financial arena is the Federal
Financial Institutions Examination Council (FFIEC). FFIEC, established
through statute in 1978, is a formal interagency body empowered to
prescribe uniform principles, standards, and report forms for the
federal examination of financial institutions by the Federal Reserve
Board, FDIC, NCUA, OCC, and the State Liaison Committee, and to make
recommendations to promote uniformity in the supervision of these
financial institutions.[Footnote 52] The Dodd-Frank Act does not
require FFIEC to play a coordinating or consultative role in any of the
act's rulemaking efforts. However, FFIEC has remained abreast of its
member agencies' activities relative to the Dodd-Frank Act through
ongoing discussions and interagency coordination of proposed
rulemakings required by the act.
It Is Too Early to Determine the Impact of Dodd-Frank Act Regulations,
but Opportunities for Future Analyses Exist:
Federal financial regulators, industry association representatives, and
others told us that assessing the actual impact of the Dodd-Frank Act
regulations generally is premature for a number of reasons, including
the following:
* Industry representatives and regulators noted that sufficient time
has not elapsed to allow for many of the Dodd-Frank Act rules to be
fully implemented and, in turn, assessed. Indeed, nearly half of the
final Dodd-Frank Act rules that were effective as of July 21, 2011, did
not take effect until after July 1, 2011, and will require time to
implement. For example, OCC and FDIC separately issued rules to allow
banks to engage in foreign-exchange transactions with retail customers
that became effective on July 15, 2011. Before engaging in such
transactions under the new rules, banks must take a number of actions,
such as obtaining permission from their regulators, modifying systems
to meet new disclosure and recordkeeping requirements, and establishing
and implementing internal rules, procedures, and controls to comply
with new trading and operational standards. Referring to the yet-to-be-
issued derivatives rules, representatives from a derivatives
association and a coalition of various national and state organizations
told us that it would take firms a significant amount of time, perhaps
years, to set up the infrastructure and develop the systems and models
needed to comply with those rules. Additionally, officials from the
Federal Reserve Board and two labor unions told us that the impact and
associated benefits and costs of the Dodd-Frank Act rules could not be
determined until the economy has gone through at least one business
cycle.
* Representatives from a banking association told us that the majority
of final rules that were effective as of July 21, 2011, were not
expected to have a significant effect--both because of their scope and
the relatively small number of them. For example, some of the Dodd-
Frank Act rulemakings to date are orders, notices, or similar actions
rather than regulations that directly impact regulated institutions and
the markets. Industry representatives said that many of the final rules
that were in effect as of July 2011 are likely to have minimal impact,
but that some of the forthcoming rules would have a significant impact,
such as those involving mortgages, derivatives trading and clearing,
and consumer financial protection. In addition, representatives from
another banking association said that banks are just beginning to
understand the rules and that only a fraction of the rules have been
finalized. Moreover, Federal Reserve Board officials said that
estimating the cumulative impact of the Dodd-Frank Act rules was not
yet possible because few of the act's provisions had taken effect.
* Some of the final rules are related to rules that are forthcoming; as
a result, the impact of these rules needs to be assessed in
combination, not in isolation. Regulators have not drafted and issued
the rules in an appropriate sequence, in part because of statutory
deadlines, creating a situation in which one rule will be affected by
another rule that has not yet been proposed. For example, the Federal
Reserve Board issued a rule to establish the period within which
financial institutions would need to bring their activities and
investments into compliance with the Volcker Rule. Authority for
developing and adopting regulations to implement the Volcker Rule is
divided among the Federal Reserve Board, OCC, FDIC, SEC, and CFTC, but
these agencies had not yet proposed such rules as of July 21, 2011. In
addition, federal financial regulators are drafting and implementing
Basel III and other non-Dodd-Frank Act rules that could have related
economic effects on regulated entities.
Likely reflecting the early stages of the implementation of the Dodd-
Frank Act, our search of several economic journal databases did not
identify any retrospective studies that analyzed the economic impact of
the Dodd-Frank Act regulations. Some studies that we reviewed
prospectively analyzed the potential costs of various aspects of the
Dodd-Frank Act but did not seek to quantify the potential benefits. For
example, the Congressional Budget Office estimated that the act would
increase the federal government's revenues and direct (or mandatory)
spending by $13.4 billion and $10.2 billion, respectively, over the
2010 through 2020 period, and those effects were projected to reduce
deficits, on net, by $3.2 billion.[Footnote 53] Other studies that we
reviewed analyzed how effectively the act, and the regulations
implemented under it, might address the causes of the recent financial
crisis and, in turn, reduce the likelihood of or mitigate future
financial crises; but these potential impacts were not
quantified.[Footnote 54] In our future reviews, we will continue to
search for and review relevant research on the benefits and costs of
Dodd-Frank Act regulations.
Regulators Have Not Yet Developed Plans for Retrospective Reviews of
Dodd-Frank Act Regulations:
Federal financial regulators are required to conduct retrospective
reviews of their existing rules under various statutes and will include
Dodd-Frank Act rules in their future reviews. The Economic Growth and
Regulatory Paperwork Reduction Act of 1996 (EGRPRA) requires FFIEC and
its members (FDIC, the Federal Reserve Board, OCC, NCUA, and formerly
OTS) to review all existing regulations every 10 years and eliminate
(or recommend statutory changes that are needed to eliminate) any
regulatory requirements that are outdated, unnecessary, or unduly
burdensome.[Footnote 55] In July 2007, FFIEC reported the results of
its members' most recent EGRPRA review, which was done over a 3-year
period ending in December 2006.[Footnote 56] In conducting their
review, the federal banking regulators sought public comment on more
than 130 regulations and hosted 16 outreach sessions around the
country. During the EGRPRA process, the federal banking agencies
undertook various efforts to reduce regulatory burden on institutions
that they supervised and regulated--including regulatory changes and
efforts to streamline supervisory processes. They also identified four
areas to explore further for opportunities to revise regulations--
suspicious activity reports, lending limits, the Basel II capital
framework, and consumer disclosures.
In addition to EGRPRA, Section 610 of RFA requires independent and
other regulatory agencies to review within 10 years of publication any
of their rules that have a significant economic impact on a substantial
number of small entities.[Footnote 57] The review's purpose is to
determine whether such rules should be maintained, amended, or
rescinded to minimize their impact on small entities.[Footnote 58]
Federal banking regulators have conducted separate Section 610 reviews
and, as discussed earlier, included such reviews within their broader
retrospective reviews done pursuant to EGRPRA. Similarly, SEC has
conducted Section 610 reviews. As a matter of policy, SEC reviews all
final rules that it publishes for notice and comment to assess their
utility and continued compliance with RFA.
Although subject to the RFA's Section 610 requirement, CFPB is also
subject to its own retrospective review requirement. Specifically,
Section 1022(d) of the Consumer Financial Protection Act of 2010
requires CFPB to assess each of its significant rules to address, among
other things, the effectiveness of the rule in meeting the purposes and
goals of the act and specific agency goals.[Footnote 59] CFPB officials
told us that they were considering how to conduct their retrospective
reviews and were looking at FFIEC's retrospective reviews as guidance.
Federal financial regulators also may review their Dodd-Frank Act
regulations in response to the recently issued E.O. 13579. The order
notes that independent regulatory agencies should consider how best to
promote retrospective analysis of rules that may be outmoded,
ineffective, insufficient, or excessively burdensome. It further notes
that each agency should develop and release to the public a plan for
periodically reviewing its existing significant regulations. Although
federal financial regulators are not required to follow E.O. 13579,
CFTC and SEC are developing plans to conduct retrospective reviews in
light of the order. In a June 2011 Federal Register release, CFTC noted
that it had reviewed many of its existing regulations as part of its
implementation of the Dodd-Frank Act.[Footnote 60] After issuing its
final Dodd-Frank Act rules, CFTC plans to conduct retrospective reviews
of the remainder of its regulations. CFTC asked for public comments on,
among other things, what criteria it should use to prioritize the
review of existing rules and which of the executive order's guidelines
and principles it should voluntarily adopt. As part of its ongoing
efforts to update its regulations and in light of E.O. 13579, SEC
issued a release in September 2011, requesting public comments on the
development of a plan for retrospective review of its existing
significant rules.[Footnote 61] Specifically, SEC asked what factors it
should consider in selecting and prioritizing rules for review and how
frequently it should conduct the reviews. SEC also included questions
on the availability of data it would need and processes for gathering
relevant data and analyses.
Although federal financial regulators told us that they planned to
conduct retrospective reviews of their Dodd-Frank Act regulations in
response to statutory requirements or at their own discretion, some of
the regulators we reviewed have not developed plans for such
reviews.[Footnote 62] In our prior work, we identified procedures and
practices that could be particularly helpful in improving the
effectiveness of retrospective reviews.[Footnote 63] In particular, we
noted that agencies would be better prepared to undertake reviews if
they had identified the needed data before beginning a review and, even
better, before promulgating the rule. If agencies fail to plan for how
they will measure the performance of their rules and how they will
obtain the data they need to do so, they may be limited in their
ability to accurately measure the progress or true effect of the
regulations. For example, by not engaging in advance planning, an
agency may realize too late that it lacks the necessary baseline data
to assess regulations promulgated years before. By planning ahead, such
as what SEC appears to be doing in its retrospective review release, an
agency can identify not only potential data collection challenges but
also alternative data sources or data collection strategies for
conducting the reviews.
FSOC Is Working to Meet Its Multiple Reporting Requirements but Has Not
Yet Taken Steps to Assess the Impact of Dodd-Frank Act Rules:
FSOC has conducted analyses to assess the impact of various provisions
and regulations of the Dodd-Frank Act. The act identifies specific
areas for FSOC to study (including making recommendations) to help
inform rulemaking. These areas include the financial sector
concentration limit applicable to large financial firms, proprietary
trading and hedge fund activities of banks, and contingent capital for
nonbank financial companies.[Footnote 64] Issued in January 2011, the
concentration limit study concluded that the limit was unlikely to have
a significant effect on the cost and availability of credit but did not
quantify the impact.[Footnote 65] Also in January 2011, the Chairperson
of FSOC issued a study on the economic impact of possible financial
services regulatory limitations intended to reduce systemic
risk.[Footnote 66] The study was based largely on existing research and
noted that the Dodd-Frank Act undoubtedly had a significant effect but
that it was too soon to attempt to quantify its aggregate impact or the
specific impact of various provisions. The Chairperson of FSOC is
required to conduct a follow-up study every 5 years and recommended
that the next study consider the experience of implementing the Dodd-
Frank Act and any further original research.
FSOC also issued its first annual report in July 2011. The Dodd-Frank
Act requires FSOC to issue an annual report that addresses, among other
things, (1) significant financial market and regulatory developments;
(2) potential emerging threats to the financial stability of the United
States; and (3) recommendations to enhance the integrity, efficiency,
competitiveness, and stability of U.S. financial markets, promote
market discipline, and maintain investor confidence. The 2010 annual
report included information and analyses on the U.S. economy and
financial system, implementation of the Dodd-Frank Act, and emerging
threats to the U.S. financial stability. Consistent with its mandate,
FSOC made a series of recommendations to its member agencies and market
participants. FSOC recommended heightened risk management and
supervisory attention in specific areas, further reforms to address
structural vulnerabilities in key markets, steps to address reform of
the housing finance market, and coordination on financial regulatory
reform. According to FSOC, its recommendations collectively addressed
the identified vulnerabilities in the system and emerging threats to
financial stability.
In light of its statutory requirements, FSOC plans to assess the future
impact of significant Dodd-Frank regulations, including those that may
not have systemic risk implications. According to FSOC staff, FSOC
would not be able to make recommendations--for instance, to improve the
integrity, efficiency, competitiveness, and stability of the U.S.
financial markets--without considering the impact of the act and its
regulations. However, they also noted that was too early for such a
review because most of the Dodd-Frank Act rules were not in effect.
FSOC staff also said that the council was actively tracking efficiency
and competitiveness-related issues and, in conjunction with the Office
of Financial Research, developing its research capabilities.[Footnote
67] According to FSOC staff, FSOC has not directed the Office of
Financial Research to begin identifying and collecting the data that
will be needed to help FSOC assess the Dodd-Frank Act rules. Rather, at
this early stage the Office of Financial Research is focused on ramping
up its capabilities with the support of FSOC members. FSOC staff said
that they expect the Office of Financial Research to provide more data
and analytical support to FSOC in the future.
GAO Is Developing a Framework for Future Impact Analyses:
In response to our mandate to analyze the impact of regulations on the
financial marketplace, we have begun to construct an analytical
framework for doing so when practicable. In developing our framework,
we have consulted with regulators, academics, industry associations,
and others. These parties recognized the importance of assessing the
impact of the Dodd-Frank Act rules or provided us with suggestions on
which rules to review and approaches for analyzing such rules. At the
same time, many stated that analyzing the impact of the Dodd-Frank Act
rules, individually or cumulatively, would be challenging because of
the multitude of intervening variables, the complexity of the financial
system, data limitations, and the changing economic conditions. One
academic has also noted that measuring the costs of financial
regulation is challenging in part because the private costs of
regulation are difficult to obtain and that measuring the benefits is a
more difficult and perhaps intractable challenge.[Footnote 68]
Likewise, we also have reported that measuring the benefits and, to a
lesser extent, the cost of financial services regulations historically
has posed a number of difficulties and challenges.[Footnote 69]
Given the challenging task at hand, we plan to continue to seek input
from the financial regulators, the industry, and others as we move
forward in developing our methodology for assessing the impact of Dodd-
Frank Act regulations. As part of our framework, we plan to continue to
track rules promulgated pursuant to the Dodd-Frank Act and develop
methods to conduct preliminary analyses of their potential impact and
benefits and costs. For example, we plan to review the benefit-cost
analysis, if any, conducted for each rule by the relevant agency. To
the extent feasible, we plan to analyze not only the specific impact of
selected rules but also the overall impact of the Dodd-Frank Act, using
quantitative methods wherever possible. However, it will be difficult
to quantify all of the potential impacts, especially those that are
expected to materialize over a longer period of time or that require
the forecasting of indirect causal relationships. As a result we plan
to augment any quantitative analysis we conduct with qualitative
assessments to provide information in these areas. We also plan to
monitor and report on relevant macroeconomic indicators, some of which
will be directly related to the variables enumerated in our mandate. To
that end, we are developing criteria for selecting rules for impact
analysis and identifying potential methodologies and data sources.
Given that the rules are being promulgated on an ongoing basis, we plan
to analyze our selected rules on a similar basis once sufficient time
has passed.
Conclusions:
In the immediate future, federal financial regulators will need to
craft hundreds of regulations to implement the Dodd-Frank Act's
reforms. The breadth of the issues and the short time frames involved
present numerous challenges, including allocating sufficient time and
resources to developing and analyzing the potential effects of the
rules to identify the regulatory alternative with the greatest net
benefits. To find that alternative, regulators would ideally monetize
the anticipated benefits and costs of regulations during rulemakings.
However, anticipating, evaluating, and measuring the potential impact
of financial regulations--especially the potential benefits--
historically have proven difficult. Indeed, for the rules we reviewed,
monetization of costs largely was limited to paperwork-related costs
and excluded other direct and indirect costs, and monetization of
benefits was nonexistent. These efforts, while positive, fall short of
what could be done to determine the potential costs and benefits of the
new rules.
The guidelines in OMB Circular A-4 could help in addressing the
challenges involved in analyzing the potential costs and benefits. It
recognizes that benefits and costs cannot always be monetized or
quantified and provides guidance for evaluating their significance when
they cannot be. For example, it directs agencies to disclose the
strengths and limitations of unquantified benefits and costs, including
why they cannot be quantified, and explain the rationale behind a
regulatory choice that is made using unquantified information. Although
the federal financial regulators are not required to follow this
guidance, most of them told us that they did so in spirit or principle.
While some regulators had completed some of OMB's recommended analyses,
we also found inconsistencies in the extent to which the analyses--and
some rulemaking policies--reflected OMB's guidance. For example, the
regulators' analyses described the need for regulatory action and
described the qualitative benefits and costs of the chosen alternative.
However, the analyses did not explain why benefits and costs could not
be monetized or quantified and did not discuss the strengths and
limitations of the available qualitative information. By taking steps
to more fully incorporate OMB's guidelines in their rulemaking policies
and procedures, federal financial regulators could enhance the rigor
and transparency of their regulatory analyses. By taking such action,
regulators could demonstrate the rationale behind their regulatory
decisions and ensure that the alternatives they have chosen are in fact
the most cost-beneficial options.
Throughout the implementation of the Dodd-Frank Act rules, coordination
among the federal financial regulators will be critical because of the
breadth of issues addressed and the number of regulators issuing
concurrent rules. With adequate and timely coordination, regulators may
avoid overlapping, duplicative, or conflicting rules that could create
market inefficiencies. We found that regulators had coordinated on some
of the rules that were effective as of July 2011. Such coordination is
a positive stepping stone for future coordination. However, we also
found that most of the coordination, to date, had been informal and ad
hoc. We also found that most of the federal financial regulators
included in our review, including CFPB, did not have formal policies to
guide interagency coordination. While informal and ad hoc coordination
can produce the desired results, such coordination can break down when
disagreements arise or other work becomes pressing. Formal policies can
institutionalize informal coordination practices and provide a
framework for coordinating, helping to ensure that regulators are
appropriately consulted and that their views, including conflicting
viewpoints, are addressed in a consistent and transparent fashion.
Given its membership and charge to help facilitate coordination among
its member agencies, FSOC is positioned to work with the federal
financial regulatory agencies to establish compatible policies that
would guide and facilitate interagency coordination among its members
throughout the course of Dodd-Frank Act rulemakings.
After the regulations are implemented, federal financial regulators
will need to revisit their prospective analyses of Dodd-Frank Act
regulations in light of actual outcomes to help ensure that the Dodd-
Frank Act regulations are achieving their intended purpose without
creating unintended consequences that negatively impact the markets.
The regulators are required to conduct retrospective reviews of their
regulations, including rules issued pursuant to the Dodd-Frank Act in
the future. However, some of the regulators have not yet developed
plans of how to review their Dodd-Frank Act regulations after they are
implemented. The regulators are still in the early stages of their
rulemaking processes and have issued only a small number of the
required rules, but not establishing baseline data early on could
complicate later assessments. As we have found, a common challenge to
conducting effective retrospective reviews is the lack of baseline data
for assessing regulations promulgated years before.[Footnote 70] By
taking steps during the initial rulemaking to determine how to measure
the effects of the Dodd-Frank Act regulations, including determining
how and when to collect, analyze, and report needed data, federal
financial regulators could better position themselves to conduct
effective retrospective reviews.
Similarly, under the Dodd-Frank Act, FSOC is also required to conduct
periodic studies. As part of these future efforts, FSOC plans to assess
significant Dodd-Frank Act regulations, including some that may not
have systemic risk implications but could affect the stability,
efficiency, or competitiveness of the U.S. financial markets.
Opportunities exist for FSOC and its members to leverage and complement
each other's retrospective analyses. To date, however, FSOC has not
directed the Office of Financial Research to help it identify and
collect the data that will be needed. Such planning efforts are
important to help ensure that FSOC can not only accurately measure the
impact of significant Dodd-Frank Act regulations but also efficiently
coordinate with its members to leverage their retrospective reviews.
Recommendations for Executive Action:
While the federal financial regulators have begun to take steps to
address challenges associated with promulgating hundreds of new rules
required under the Dodd-Frank Act, we are making four recommendations
aimed at improving the efficiency and effectiveness of these efforts.
* To strengthen the rigor and transparency of their regulatory
analyses, we recommend that the federal financial regulators take steps
to better ensure that the specific practices in OMB's regulatory
analysis guidance are more fully incorporated into their rulemaking
policies and consistently applied.
* To enhance interagency coordination on regulations issued pursuant to
the Dodd-Frank Act, we recommend that FSOC work with the federal
financial regulatory agencies to establish formal coordination policies
that clarify issues such as when coordination should occur, the process
that will be used to solicit and address comments, and what role FSOC
should play in facilitating coordination.
* To maximize the usefulness of the required retrospective reviews, we
recommend that the federal financial regulatory agencies develop plans
that determine how they will measure the impact of Dodd-Frank Act
regulations--for example, determining how and when to collect, analyze,
and report needed data.
* To effectively carry out its statutory responsibilities, we recommend
that FSOC direct the Office of Financial Research to work with its
members to identify and collect the data necessary to assess the impact
of the Dodd-Frank Act regulations on, among other things, the
stability, efficiency, and competitiveness of the U.S. financial
markets.
Agency Comments and Our Evaluation:
We provided a draft of this report to CFPB, CFTC, FDIC, the Federal
Reserve Board, FFIEC, FSOC, NCUA, OCC, and SEC for review and comment.
CFTC, CFPB, FDIC, the Federal Reserve Board, FSOC, OCC, and SEC
provided written comments that we have reprinted in appendixes V
through XI, respectively. All of these regulators also provided
technical comments, which we have incorporated, as appropriate. FFIEC
and NCUA did not provide any comments on the draft report.
In their written comments, the regulators generally agreed with our
findings and conclusions, and some agreed with the recommendations,
while others neither agreed nor disagreed but stated actions they had
taken or planned to take regarding the recommendations. For example, in
their letters, FDIC and SEC noted the challenges of analyzing the
economic impact of financial regulations, but recognized the importance
of such analysis as part of the rulemaking process. FDIC, OCC, and SEC
also noted that they are not subject to E.O. 12866 and the accompanying
OMB guidance, although they each agreed to look for opportunities to
more fully incorporate the guidance into their rulemaking process. In
addition, CFPB noted its commitment to evidence-based rulemaking, and
the Federal Reserve Board said it will consider appropriate ways to
incorporate applicable recommendations into its rulemaking efforts.
With regard to the recommendation on developing coordination policies,
FSOC noted the importance of coordination and said it would consider
the recommendations as it continues to improve protocols and CFTC
outlined its coordination efforts. In addition, while agreeing that
interagency coordination is important, OCC and SEC also noted in their
letters that efforts to improve coordination through FSOC must be
balanced with the need to ensure that the independence of each
regulator is not affected. We agree that the independence of the
regulators is vital to their work, and we do not believe working with
FSOC and the other regulators to establish formal coordination policies
will diminish the regulators' independence. To the contrary,
establishing coordination policies would allow the regulators and FSOC
to clarify their roles, including how coordination should take place
given the independence of the regulators and their varying missions.
We are sending copies of this report to CFPB, CFTC, FDIC, the Federal
Reserve Board, FFIEC, FSOC, NCUA, OCC, SEC, interested congressional
committees, members, and others. This report will also be available at
no charge on our Web site at [hyperlink, http://www.gao.gov].
Should you or your staff have questions concerning this report, please
contact me at (202) 512-8678 or clowersa@gao.gov. Contact points for
our Offices of Congressional Relations and Public Affairs may be found
on the last page of this report. Key contributors to this report are
listed in appendix XII.
Signed by:
A. Nicole Clowers:
Director Financial Markets and Community Investment:
List of Addressees:
The Honorable Harry Reid:
Majority Leader:
The Honorable Mitch McConnell:
Minority Leader:
United States Senate:
The Honorable John Boehner:
Speaker:
The Honorable Nancy Pelosi:
Minority Leader:
House of Representatives:
The Honorable Debbie Stabenow:
Chairwoman:
The Honorable Pat Roberts:
Ranking Member:
Committee on Agriculture, Nutrition and Forestry:
United States Senate:
The Honorable Daniel K. Inouye:
Chairman:
The Honorable Thad Cochran:
Vice Chairman:
Committee on Appropriations:
United States Senate:
The Honorable Tim Johnson:
Chairman:
The Honorable Richard C. Shelby:
Ranking Member:
Committee on Banking, Housing, and Urban Affairs:
United States Senate:
The Honorable John D. Rockefeller IV:
Chairman:
The Honorable Kay Bailey Hutchison:
Ranking Member:
Committee on Commerce, Science, and Transportation:
United States Senate:
The Honorable Frank D. Lucas:
Chairman:
The Honorable Collin C. Peterson:
Ranking Member:
Committee on Agriculture:
House of Representatives:
The Honorable Hal Rogers:
Chairman:
The Honorable Norm Dicks:
Ranking Member:
Committee on Appropriations:
House of Representatives:
The Honorable Fred Upton:
Chairman:
The Honorable Henry A. Waxman:
Ranking Member:
Committee on Energy and Commerce:
House of Representatives:
The Honorable Spencer Bachus:
Chairman:
The Honorable Barney Frank:
Ranking Member:
Committee on Financial Services:
House of Representatives:
[End of section]
Appendix I: Scope and Methodology:
Our objectives in this report were to examine (1) the regulatory
analyses, including benefit-cost analyses, federal financial regulators
have performed to assess the potential impact of selected final rules
issued pursuant to the Dodd-Frank Act; (2) how federal financial
regulators consulted with each other in implementing selected final
rules issued pursuant to the Dodd-Frank Act to avoid duplication or
conflicts; and (3) what is known about the impact of the final Dodd-
Frank Act regulations.
To address these objectives, we limited our analysis to the final rules
issued pursuant to the Dodd-Frank Act that were effective as of July
21, 2011, a total of 32 rules.[Footnote 71] See appendix III. To
identify these rules, we used a Web site maintained by the Federal
Reserve Bank of St. Louis that tracks Dodd-Frank Act
regulations.[Footnote 72] We corroborated the data with publicly
available information on Dodd-Frank Act rulemaking compiled by the law
firm Davis Polk and Wardwell.[Footnote 73]
To address our first objective, we reviewed statutes, regulations, GAO
and inspector general studies, and other documentation to identify the
benefit-cost or similar analyses federal financial regulators are
required to conduct in conjunction with rulemaking. We selected 10 of
the 32 rules for further review, comparing the benefit-cost or similar
analyses to relevant principles outlined in the Office of Management
and Budget's (OMB) Circular A-4. We selected the rules for further
review based primarily on the amount of discretion that agency
officials were able to exercise in implementing the specific Dodd-Frank
Act provision.[Footnote 74] To determine agency discretion, we reviewed
the Federal Register notices for the agency's determination of the
discretion it was granted. To compare these rules to the principles in
Circular A-4, we developed a checklist with the principles and applied
the checklist to all 10 rules. In conducting each individual analysis,
we reviewed the Federal Register notices and any supplemental benefit-
cost or similar data prepared by the agencies during the course of the
rulemaking. Based on each individual checklist, we prepared a summary
checklist that analyzed the extent to which the rules as a group
complied with the Circular A-4 principles. We also interviewed
officials from the Commodity Futures Trading Commission, Consumer
Financial Protection Bureau, Federal Deposit Insurance Corporation, the
Board of Governors of the Federal Reserve System, Financial Stability
Oversight Council, National Credit Union Administration, Office of the
Comptroller of the Currency, Office of Financial Research, OMB, and
Securities and Exchange Commission to determine the extent to which
benefit-cost or similar analyses were conducted and whether the
analyses were required by statute, regulation, or executive order.
Finally, we interviewed officials from the inspectors general of
several federal financial regulators; representatives from various
industry and other associations, including the American Bankers
Association, Americans for Financial Reform, Business Roundtable,
Consumer Bankers Association, Futures Industry Association, Independent
Community Bankers of America, International Swaps and Derivatives
Association, Managed Funds Association, and U.S. Chamber of Commerce;
representatives from the American Federation of Labor-Council of
Industrial Organizations and Association of Federal, State, County, and
Municipal Employees; and others, including academics and consultants,
about their views on the benefit-cost analyses being done by federal
financial regulators in their Dodd-Frank Act rulemakings.
To address our second objective, we reviewed the Dodd-Frank Act,
regulations, and studies, including GAO reports, to identify the
coordination and consultation requirements federal financial regulators
are required to conduct in conjunction with rulemaking. We selected 18
rules for further review--two of which required interagency
coordination under the Dodd-Frank Act. We selected the other rules for
further review based primarily on our judgment as to whether the rules
could have benefited from any interagency coordination or consultation.
To make our determination, we looked for regulations involving issues
or subject matters that were overseen by multiple federal financial
regulators. Among the 32 rules that were effective as of July 21, 2011,
we identified three notices and one list that had coordination or
consultation requirements. We did not include these agency releases in
our review because they are not regulations. We then sent out
questionnaires for each of the judgmentally selected rules to staff at
the regulatory agencies responsible for promulgating the rules. We
compiled and reviewed the completed questionnaires to assess how
coordination and consultation were taking place between or among the
regulatory agencies. We also interviewed officials from the federal
financial regulatory agencies identified above to determine the extent
to which coordination occurred during their Dodd-Frank Act rulemaking.
We sent questionnaires to each federal financial regulatory agency we
interviewed to identify what broad policies and procedures they have
developed to facilitate interagency coordination and consultation. In
addition, we interviewed industry representatives and others identified
in objective one to obtain their views on interagency coordination and
consultation in connection with the Dodd-Frank Act rulemakings.
To address our third objective, we conducted literature searches to
identify academic and other studies that assessed the impact of the
Dodd-Frank Act, generally, or its various provisions and regulations,
specifically. We reviewed the Federal Register releases for the 32
rules effective as of July 21, 2011, to identify the impact or benefit-
cost analysis that the agencies conducted in connection with their
rules. For 16 of the 32 rules, we sent questionnaires to the
appropriate federal financial regulators to obtain their views on how
the rules could impact the six variables enumerated in our mandate,
which included the safety and soundness of regulated entities, cost and
availability of credit, and costs of compliance with the rules. We also
reviewed academic literature to identify potential data sources and
methodological approaches and limitations. To identify statutory and
other requirements imposed on the federal financial regulators for
conducting retrospective or similar reviews of their existing
regulations, we reviewed statutes, executive orders, Federal Register
releases, and GAO and other reports. Finally, we interviewed the
federal financial regulators, industry representatives, and others
identified in objective one about the possible data sources and
methodological approaches that we could use to analyze the actual
impact of the Dodd-Frank Act regulations, individually or cumulatively,
in the future and the potential challenges of conducting such analyses.
We conducted this performance audit from April 2011 to November 2011 in
accordance with generally accepted government auditing standards. Those
standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.
[End of section]
Appendix II: Summary of Common Regulatory Analysis Requirements:
This appendix provides information on commonly applicable requirements
for regulatory analysis established by statutes. We included those
requirements identified by the Dodd-Frank Act rules within the scope of
our review for this report and list the requirements chronologically.
For each requirement, we summarize the general purpose, applicability
to federal financial regulators, and requirements imposed by the
initiatives that were relevant to the rules we examined for this
report.
Administrative Procedure Act:
The Administrative Procedure Act (APA) was enacted in 1946 and
established the basic framework of administrative law governing federal
agency action, including rulemaking. Section 553 of Title 5, United
States Code, governs "notice-and-comment" rulemaking, also referred to
as "informal" or "APA rulemaking." Section 553 generally requires (1)
publication of a notice of proposed rulemaking, (2) opportunity for
public participation in the rulemaking by submission of written
comments, and (3) publication of a final rule and accompanying
statement of basis and purpose not less than 30 days before the rule's
effective date. Congresses and Presidents have taken a number of
actions to refine and reform this regulatory process since the APA was
enacted. APA applies to all federal agencies, including federal
financial regulators.
Regulatory Flexibility Act:
The Regulatory Flexibility Act (RFA) was enacted in response to
concerns about the effect that federal regulations can have on small
entities. The RFA requires independent and other regulatory agencies,
including the federal financial regulators, to assess the impact of
their rules on "small entities," defined as including small businesses,
small governmental jurisdictions, and certain small not-for-profit
organizations. Under the RFA, an agency must prepare an initial
regulatory flexibility analysis at the time proposed rules are issued,
unless the head of the agency certifies that the proposed rule would
not have a "significant economic impact upon a substantial number of
small entities." 5 U.S.C. § 605(b). The analysis must include a
consideration of regulatory alternatives that accomplish the stated
objectives of the proposed rule and that minimize any significant
impact on such entities. However, RFA only requires consideration of
such alternatives and an explanation of why alternatives were rejected;
the act does not mandate any particular outcome in rulemaking. After
the comment period on the proposed rule is closed, the agency must
either certify a lack of impact, or prepare a final regulatory
flexibility analysis, which among other things, responds to issues
raised by public comments on the initial regulatory flexibility
analysis. The agencies must make the final analysis available to the
public and publish the analysis or a summary of it in the Federal
Register. The act also requires agencies to ensure that small entities
have an opportunity to participate in the rulemaking process and
requires the Chief Counsel of the Small Business Administration's
Office of Advocacy to monitor agencies' compliance. The RFA applies
only to rules for which an agency publishes a notice of proposed
rulemaking (or promulgates a final interpretative rule involving the
internal revenue laws of the United States), and it does not apply to
ratemaking.
Paperwork Reduction Act of 1980:
The Paperwork Reduction Act (PRA) requires agencies to justify any
collection of information from the public to minimize the paperwork
burden they impose and to maximize the practical utility of the
information collected. The act applies to independent and other
regulatory agencies, including the federal financial regulators. Under
the PRA, agencies are required to submit all proposed information
collections to the Office of Information and Regulatory Affairs (OIRA)
in the Office of Management and Budget (OMB). Information collections
generally cover information obtained from 10 or more sources. In their
submissions, agencies must establish the need and intended use of the
information, estimate the burden that the collection will impose on
respondents, and show that the collection is the least burdensome way
to gather the information. Generally, the public must be given a chance
to comment on proposed collections of information. 44 U.S.C. § 3506(c),
5 C.F.R. § 1320. At the final rulemaking stage, no additional public
notice and opportunity for comment is required, although OMB may direct
the agency to publish a notice in the Federal Register notifying the
public of OMB review.
Unfunded Mandates Reform Act of 1995:
The Unfunded Mandates Reform Act (UMRA) was enacted to address concerns
about federal statutes and regulations that require nonfederal parties
to expend resources to achieve legislative goals without being provided
funding to cover the costs. UMRA generates information about the nature
and size of potential federal mandates but does not preclude the
implementation of such mandates. UMRA applies to proposed federal
mandates in both legislation and regulations, but it does not apply to
rules published by independent regulatory agencies, such as the federal
financial regulators.[Footnote 75] With regard to the regulatory
process, UMRA generally requires federal agencies to prepare a written
statement containing a "qualitative and quantitative assessment of the
anticipated costs and benefits" for any rule that includes a federal
mandate that may result in the expenditure of $100 million or more in
any 1 year by state, local, and tribal governments in the aggregate, or
by the private sector. For such rules, agencies are to identify and
consider a reasonable number of regulatory alternatives and from those
select the least costly, most cost-effective, or least burdensome
alternative that achieves the objectives of the rule (or explain why
that alternative was not selected). UMRA also includes a consultation
requirement; agencies must develop a process to permit elected officers
of state, local, and tribal governments (or their designees) to provide
input in the development of regulatory proposals containing significant
intergovernmental mandates. UMRA applies only to rules for which an
agency publishes a notice of proposed rulemaking.
Small Business Regulatory Enforcement Fairness Act:
Congress amended RFA in 1996 by enacting the Small Business Regulatory
Enforcement Fairness Act (SBREFA). SBREFA included judicial review of
compliance with RFA. SBREFA requires agencies to develop one or more
compliance guides for each final rule or group of related final rules
for which the agency is required to prepare a regulatory flexibility
analysis. SBREFA also requires the Environmental Protection Agency, the
Occupational Safety and Health Administration, and the Consumer
Financial Protection Bureau to convene advocacy review panels before
publishing an initial regulatory flexibility analysis. The federal
financial regulators are subject to SBREFA.
Congressional Review Act:
The Congressional Review Act (CRA) was enacted as part of SBREFA in
1996 to better ensure that Congress has an opportunity to review, and
possibly reject, rules before they become effective. CRA established
expedited procedures by which members of Congress may disapprove
agencies' rules by introducing a resolution of disapproval that, if
adopted by both Houses of Congress and signed by the President, can
nullify an agency's rule. CRA applies to rules issued by independent
and other regulatory agencies, including the federal financial
regulators. CRA requires agencies to file final rules with both
Congress and GAO before the rules can become effective. GAO's role
under CRA is to provide Congress with a report on each major rule
(rules resulting in or likely to result in a $100 million annual impact
on the economy, a major increase in costs or prices, or significant
adverse effects on competition, employment, investment, productivity,
innovation, or the ability of U.S.-based enterprises to compete with
foreign-based enterprises) including GAO's assessment of the issuing
agency's compliance with the procedural steps required by various acts
and executive orders governing the rulemaking process.
[End of section]
Appendix III: Dodd-Frank Act Rules Effective as of July 21, 2011:
Table:
Rulemaking: Deposit Insurance Regulations;
Permanent Increase in Standard Coverage Amount;
Advertisement of Membership;
International Banking;
Foreign Banks (75 Fed. Reg. 49363);
Responsible regulator: FDIC;
Effective date: 8/13/2010;
Did the regulator have some level of discretion?: No;
Did the regulator identify the rule as having significant economic
impact?: No.
Rulemaking: Display of Official Sign;
Permanent Increase in Standard Maximum Share (75 Fed. Reg. 53841);
Responsible regulator: NCUA;
Effective date: 9/2/2010;
Did the regulator have some level of discretion?: No;
Did the regulator identify the rule as having significant economic
impact?: No.
Rulemaking: Internal Controls over Financial Reporting in Exchange Act
Periodic Reports (75 Fed. Reg. 57385);
Responsible regulator: SEC;
Effective date: 9/21/2010;
Did the regulator have some level of discretion?: No;
Did the regulator identify the rule as having significant economic
impact?: No.
Rulemaking: Commission Guidance Regarding Auditing, Attestation, and
Related Professional Practice Standards Related to Brokers and Dealers
(75 Fed. Reg. 60616);
Responsible regulator: SEC;
Effective date: 10/1/2010;
Did the regulator have some level of discretion?: N/A;
Did the regulator identify the rule as having significant economic
impact?: N/A.
Rulemaking: Removal from Regulation FD of the Exemption for Credit
Rating Agencies (75 Fed. Reg. 61050);
Responsible regulator: SEC;
Effective date: 10/4/2010;
Did the regulator have some level of discretion?: No;
Did the regulator identify the rule as having significant economic
impact?: No.
Rulemaking: Regulation of Off-Exchange Retail Foreign Exchange
Transactions and Intermediaries (75 Fed. Reg. 55410);
Responsible regulator: CFTC;
Effective date: 10/18/2010;
Did the regulator have some level of discretion?: Yes;
Did the regulator identify the rule as having significant economic
impact?: No.
Rulemaking: Deposit Insurance Regulations: Unlimited Coverage for
Noninterest-Bearing Transaction Accounts (75 Fed. Reg. 69577);
Responsible regulator: FDIC;
Effective date: 12/31/2010;
Did the regulator have some level of discretion?: No;
Did the regulator identify the rule as having significant economic
impact?: No.
Rulemaking: Designated Reserve Ratio (75 Fed. Reg. 79286);
Responsible regulator: FDIC;
Effective date: 1/1/2011;
Did the regulator have some level of discretion?: Yes;
Did the regulator identify the rule as having significant economic
impact?: No.
Rulemaking: Rules of Practice -Handling of Proposed Rule Changes
Submitted by Self-Regulatory Organizations (76 Fed. Reg. 4066);
Responsible regulator: SEC;
Effective date: 1/24/2011;
Did the regulator have some level of discretion?: N/A;
Did the regulator identify the rule as having significant economic
impact?: N/A.
Rulemaking: Deposit Insurance Regulations;
Unlimited Coverage for Noninterest-Bearing Transaction Accounts;
Inclusion of Interest on Lawyers Trust Accounts (76 Fed. Reg. 4813);
Responsible regulator: FDIC;
Effective date: 1/27/2011;
Did the regulator have some level of discretion?: No;
Did the regulator identify the rule as having significant economic
impact?: No.
Rulemaking: Issuer Review of Assets in Offerings of Asset-Back
Securities (76 Fed. Reg. 4231);
Responsible regulator: SEC;
Effective date: 3/28/2011;
Did the regulator have some level of discretion?: Yes;
Did the regulator identify the rule as having significant economic
impact?: Yes.
Rulemaking: Disclosure for Asset-Backed Securities Required by Section
943 of the Dodd-Frank Wall Street Reform and Consumer Protection Act
(76 Fed. Reg. 4489);
Responsible regulator: SEC;
Effective date: 3/28/2011;
Did the regulator have some level of discretion?: Yes;
Did the regulator identify the rule as having significant economic
impact?: Yes.
Rulemaking: Conformance Period for Entities Engaged in Prohibited
Proprietary Trading or Private Equity Fund or Hedge Fund Activities (76
Fed. Reg. 8265);
Responsible regulator: Federal Reserve Board;
Effective date: 4/1/2011;
Did the regulator have some level of discretion?: Yes;
Did the regulator identify the rule as having significant economic
impact?: No.
Rulemaking: Assessments, Large Bank Pricing (76 Fed. Reg. 10672);
Responsible regulator: FDIC;
Effective date: 4/1/2011;
Did the regulator have some level of discretion?: Yes;
Did the regulator identify the rule as having significant economic
impact?: No.
Rulemaking: Higher Rate Threshold for Escrow Requirements (76 Fed. Reg.
11319);
Responsible regulator: Federal Reserve Board;
Effective date: 4/1/2011;
Did the regulator have some level of discretion?: No;
Did the regulator identify the rule as having significant economic
impact?: No.
Rulemaking: Shareholder Approval of Executive Compensation and Golden
Parachute Compensation (76 Fed. Reg. 6010);
Responsible regulator: SEC;
Effective date: 4/4/2011;
Did the regulator have some level of discretion?: Yes;
Did the regulator identify the rule as having significant economic
impact?: Yes.
Rulemaking: Establishment of the FDIC Systemic Resolution Advisory
Committee (76 Fed. Reg. 25352);
Responsible regulator: FDIC;
Effective date: 4/28/2011;
Did the regulator have some level of discretion?: N/A;
Did the regulator identify the rule as having significant economic
impact?: N/A.
Rulemaking: Order Directing Funding for the Governmental Accounting
Standards Board (76 Fed. Reg. 28247);
Responsible regulator: SEC;
Effective date: 5/16/2011;
Did the regulator have some level of discretion?: N/A;
Did the regulator identify the rule as having significant economic
impact?: N/A.
Rulemaking: Share Insurance and Appendix (76 Fed. Reg. 30250);
Responsible regulator: NCUA;
Effective date: 6/24/2011;
Did the regulator have some level of discretion?: No;
Did the regulator identify the rule as having significant economic
impact?: No.
Rulemaking: Modification of Treasury Regulations Pursuant to Section
939A of the Dodd-Frank Wall Street Reform and Consumer Protection Act
(76 Fed. Reg. 39278);
Responsible regulator: Treasury;
Effective date: 7/6/2011;
Did the regulator have some level of discretion?: No;
Did the regulator identify the rule as having significant economic
impact?: No.
Rulemaking: Retail Foreign Exchange Transactions (76 Fed. Reg. 40779);
Responsible regulator: FDIC;
Effective date: 7/15/2011;
Did the regulator have some level of discretion?: Yes;
Did the regulator identify the rule as having significant economic
impact?: No.
Rulemaking: Retail Foreign Exchange Transactions (76 Fed. Reg. 41375);
Responsible regulator: OCC;
Effective date: 7/15/2011;
Did the regulator have some level of discretion?: Yes;
Did the regulator identify the rule as having significant economic
impact?: No.
Rulemaking: Beneficial Ownership Reporting Requirements and Security-
Based Swaps (76 Fed. Reg. 34579);
Responsible regulator: SEC;
Effective date: 7/16/2011;
Did the regulator have some level of discretion?: Yes[A];
Did the regulator identify the rule as having significant economic
impact?: No.
Rulemaking: Prohibition Against Payment of Interest on Demand Deposits
(76 Fed. Reg. 42015);
Responsible regulator: Federal Reserve Board;
Effective date: 7/21/2011;
Did the regulator have some level of discretion?: No;
Did the regulator identify the rule as having significant economic
impact?: No.
Rulemaking: List of OTS Regulations to be Enforced by the OCC and FDIC
Pursuant to the Dodd-Frank Act (76 Fed. Reg. 39246);
Responsible regulator: OCC/FDIC;
Effective date: 7/21/2011;
Did the regulator have some level of discretion?: N/A;
Did the regulator identify the rule as having significant economic
impact?: N/A.
Rulemaking: Office of Thrift Supervision Integration;
Dodd-Frank Act Implementation (76 Fed. Reg. 43549);
Responsible regulator: OCC;
Effective date: 7/21/2011;
Did the regulator have some level of discretion?: N/A;
Did the regulator identify the rule as having significant economic
impact?: N/A.
Rulemaking: Exemptions for Advisers to Venture Capital Funds, Private
Fund Advisers with Less Than $150 Million in Assets under Management,
and Foreign Private Advisers (76 Fed. Reg. 39646);
Responsible regulator: SEC;
Effective date: 7/21/2011;
Did the regulator have some level of discretion?: Yes;
Did the regulator identify the rule as having significant economic
impact?: No.
Rulemaking: Consumer Transfer Protection Date (75 Fed. Reg. 57252);
Responsible regulator: CFPB;
Effective date: 7/21/2011;
Did the regulator have some level of discretion?: N/A;
Did the regulator identify the rule as having significant economic
impact?: N/A.
Rulemaking: Identification of Enforceable Rules and Orders (76 Fed.
Reg. 43569);
Responsible regulator: CFPB;
Effective date: 7/21/2011;
Did the regulator have some level of discretion?: N/A;
Did the regulator identify the rule as having significant economic
impact?: N/A.
Rulemaking: Consumer Leasing -Exempt Consumer Credit under Regulation M
(75 Fed. Reg. 18349);
Responsible regulator: Federal Reserve Board;
Effective date: 7/21/2011;
Did the regulator have some level of discretion?: No;
Did the regulator identify the rule as having significant economic
impact?: No.
Rulemaking: Truth in Lending -Exempt Consumer Credit under Regulation Z
(76 Fed. Reg. 18354);
Responsible regulator: Federal Reserve Board;
Effective date: 7/21/2011;
Did the regulator have some level of discretion?: No;
Did the regulator identify the rule as having significant economic
impact?: No.
Rulemaking: Interest on Deposits;
Deposit Insurance Coverage (76 Fed. Reg. 41392);
Responsible regulator: FDIC;
Effective date: 7/21/2011;
Did the regulator have some level of discretion?: No;
Did the regulator identify the rule as having significant economic
impact?: No.
Source: GAO summary of information from the Federal Reserve Bank of St.
Louis [hyperlink,
http://www.stlouisfed.org/regreformrules/final.aspxH].
Note: We use the term "rules" in this report generally to refer to
Federal Register notices of agency action pursuant to the Dodd-Frank
Act, including regulations, interpretive rules, general statements of
policy, and rules that deal with agency organization, procedure, or
practice. N/A refers to "not applicable" and includes those rulemakings
related to interpretive rules, general statements of policy, and rules
that deal with agency organization, procedure, or practice, and thus
not subject to APA requirements. In some instances, we found that an
agency had discretion to implement the statute, even though the
discretion was limited, because the exercise of discretion was
important to implementation.
[A] This rule was implemented at the discretion of SEC but was not
included among the 10 rules in our regulatory analysis study. We
omitted the rule from our study because SEC stated that it readopted
existing rules without change in order to preserve the regulatory
status quo while agency staff continues to develop proposals to
modernize reporting requirements under Exchange Act sections 13(d) and
13(g).
[End of table]
[End of section]
Appendix IV: Case Studies of 10 Selected Rules:
This appendix provides case studies on 10 final rules issued pursuant
to the Dodd-Frank Act that were effective as of July 21, 2011, and
reviewed for this report. At the beginning of each case study is the
official rule title as published in the Federal Register. The body of
each case study includes a synopsis of the rule; a discussion of the
key aspects of the regulatory analysis, including the assessment of the
benefits and costs, addressed in the proposed and final rules; the
number, nature, and disposition of public comments regarding the
regulatory analysis; and identifying information.
Rule Synopsis. Provides summary information about the substance and
effects of the rule, such as the intent or purpose of the rule, a brief
discussion of the rule's origin, rulemaking history, or regulatory
authority upon which the rule was created.
Key Aspects of Regulatory Analysis. Identifies generally-applicable
rulemaking requirements discussed by the agency in the proposed and
final rules as published in the Federal Register. These requirements
include identification of the problem addressed by the rule,
consideration of alternatives reflecting the range of statutory
discretion, the Paperwork Reduction Act (PRA), the Regulatory
Flexibility Act (RFA), benefit-cost analysis, and agency-specific
statutory requirements.
Public Comments. Identifies the total number of public comments
received by the agency with respect to the rule and the number, nature,
and disposition of public comments regarding the agency's regulatory
analysis.
Identifying Information. Identifies the responsible federal agency,
citation in the Federal Register of the final rule, and date of the
proposed rule and final rule.
Regulation of Off-Exchange Retail Foreign Exchange Transactions and
Intermediaries:
Rule Synopsis:
The Commodity Futures Trading Commission (CFTC) issued the rule to
implement provisions of the Dodd-Frank Act, specifically Section 742,
and the CFTC Reauthorization Act of 2008[Footnote 76] with respect to
off-exchange transactions in foreign currency with members of the
retail public. The Rule was proposed in January 2010 prior to the
enactment of the Dodd-Frank Act, but in final form also implements
Section 742 which requires that specified federal regulatory agencies,
including CFTC, promulgate rules regarding retail forex transactions.
The regulations establish requirements for, among other things,
registration, disclosure, recordkeeping, financial reporting, minimum
capital, and other operational standards.
Key Aspects of Regulatory Analyses:
* Identified problem to be addressed by regulation: In addition to
regulations expressly called for by the Dodd-Frank Act and CFTC
Reauthorization Act, CFTC included additional regulatory requirements
prompted both by the essential differences between on-exchange
transactions and retail forex transactions, and by the history of
fraudulent practices in the retail forex market.
* Consideration of alternatives reflecting the range of statutory
discretion:
- Based on the comments received, CFTC adopted a revised security
deposit requirement for futures commission merchants (FCM) and retail
foreign exchange dealers (RFED), which, in part, permits security
deposit levels within set parameters and provides a mechanism for
setting security deposit levels anchored in, and adaptable to, market
conditions.
* CFTC determined that FCMs and RFEDs must provide information
regarding profitable or not profitable accounts for the four most
recent quarters, and upon request, provide historical quarterly
performance for the five most recent years. In response to commenter
suggestions, CFTC clarified the definition of "not profitable" to
clearly include accounts that break even.
* While initially proposing that any introducing broker (IB) must enter
into a guarantee agreement with an FCM or an RFED, upon reviewing
comments, CFTC's final rule states that IBs who register in order to
transact retail forex business can choose between entering into a
guarantee agreement with an FCM or RFED, or maintaining the existing IB
minimum net capital requirement.
* CFTC's final rule implements a $20 million minimum net capital
requirement for FCMs engaging in retail forex transactions and for
RFEDs, and additional requirements to the extent that an FCM's or
RFED's total retail forex obligation to its customers exceed $10
million. The rule was adopted without the commenter's proposed straight-
through processing exemption because the proposed additional capital
requirement was intended to provide a capital requirement that directly
relates to the size of the firm's liability to retail forex customers
and some firms offering retail forex transactions have liabilities to
retail customers exceeding $10 million.
* While some commenters argued a personal responsibility requirement
would discourage any individual from taking the position, CFTC's final
rule requires each retail forex counterparty to designate a chief
compliance officer.
* CFTC's final rule prohibits the making of guarantees against loss to
retail foreign exchanges customers by FCMs, RFEDs,and IBs, even though
some commenters argued some guarantees should be permissible.
* While one commenter found the requirement unnecessary, CFTC's final
rule states that RFEDs and FCMs engaging in off-exchange retail forex
transactions must close out offsetting long and short positions in a
retail forex customer's account, regardless of whether the customer
instructs otherwise.
* After reviewing comments, the CFTC's final rule, just as the proposed
rule did, created a prohibition against providing a customer a new bid
(or asked) price that is higher (or lower) than a previous price
without providing a new asked (or bid) price that is higher (or lower)
as well.
- CFTC's final rule enforces its authority to regulate retail "futures
look-alike" forex contracts, as CFTC disagreed with one commenter's
position that such a regulation was not statutorily permissible.
- After reviewing comments arguing confusion was created by the
wording, CFTC's final rule maintained the definition of retail forex
transactions.
- While some commenters argue such rules are anticompetitive, CFTC's
final rules differ from those applicable to entities engaged in futures
transaction on designated contract markets in ways that reflect
meaningful differences in the market structure of retail forex
transactions.
* PRA: CFTC determined that this final rule contains information
collection requirements within the meaning of the act, which it
submitted to the Office of Management and Budget (OMB). CFTC estimated
that the total estimated reporting burden for regulated entities
subject to the regulation would be approximately 222,000 hours.
* RFA: CFTC determined that the regulation would not have a significant
impact on a substantial number of small entities.
* Benefit-cost analysis:
Table:
Benefits: Enhance protection of market participants and the public;
Benefits or costs monetized?: No;
Estimated impacts (in millions): N/A;
Reasons cited for not monetizing benefits or costs: None;
Qualitative description of the benefits or costs?: Yes.
Benefits: Comparable regulatory regimes for FCMs and RFEDs;
Benefits or costs monetized?: No;
Estimated impacts (in millions): N/A;
Reasons cited for not monetizing benefits or costs: None;
Qualitative description of the benefits or costs?: Yes.
Benefits: Comparable regulatory regime to on-exchange forex
transactions;
Benefits or costs monetized?: No;
Estimated impacts (in millions): N/A;
Reasons cited for not monetizing benefits or costs: None;
Qualitative description of the benefits or costs?: Yes.
Benefits: Requires sound risk management practices;
Benefits or costs monetized?: No;
Estimated impacts (in millions): N/A;
Reasons cited for not monetizing benefits or costs: None;
Qualitative description of the benefits or costs?: Yes.
Benefits: Oversight of forex counterparties and intermediaries;
Benefits or costs monetized?: No;
Estimated impacts (in millions): N/A;
Reasons cited for not monetizing benefits or costs: None;
Qualitative description of the benefits or costs?: Yes.
Costs: Preparing and filing required disclosures;
Benefits or costs monetized?: No;
Estimated impacts (in millions): N/A;
Reasons cited for not monetizing benefits or costs: None;
Qualitative description of the benefits or costs?: Yes.
N/A = not applicable.
Source: GAO.
Public Comments:
[End of table]
* Number of days to comment: 60:
* Number of comments received: over 9,100:
* Comments regarding regulatory analysis: None:
Identifying Information:
* Agency: CFTC:
* Date of proposed rule: January 20, 2010:
* Date of final rule: September 10, 2010:
* Effective date: October 18, 2010:
* Federal Register citation: 75 Fed. Reg. 55410:
Designated Reserve Ratio:
Rule Synopsis:
The Dodd-Frank Act provides the Federal Deposit Insurance Corporation
(FDIC) with greater authority to manage the Deposit Insurance Fund
(DIF), including where to set the designated reserve ratio (DRR).
Section 334 of the act sets the minimum DRR at 1.35 percent (from the
former of 1.15 percent) and removes the previous upper limit, which was
set at 1.5 percent. Section 334 of the act also requires the DRR to
reach 1.35 percent by September 30, 2020, and Section 332 removes the
requirement of FDIC to pay dividends when the ratio is between 1.35
percent and 1.5 percent. Pursuant to the requirements and authority
within the Dodd-Frank Act, FDIC is adopting a DRR of 2 percent.
Ultimately, FDIC will maintain at least 2 percent in the fund, as the 2
percent fund goal is a long-range, minimum target. FDIC also will adopt
a progressively lower assessment rate schedule when the reserve ratio
exceeds 2 percent and 2.5 percent. The progressively lower rates will
essentially serve the function of dividend payments.
Key Aspects of Regulatory Analyses:
* Identified problem to be addressed by regulation: FDIC is increasing
the DRR to ensure DIF is able to keep a positive balance during a
future crisis of the magnitude of the 2007-2009 financial crisis.
Additionally, it sets rate schedules that are consistent and moderate
throughout economic and credit cycles.
* Consideration of alternatives reflecting the range of statutory
discretion:
- FDIC considered commenter positions encouraging a lower DRR but
determined a 2 percent DRR at a minimum would allow the fund to survive
the crisis of an economic downturn.
* PRA: FDIC did not conduct a PRA analysis because no collection of
information is required for this rule.
* RFA: FDIC conducted an analysis and concluded that DRR has no
significant economic impact on small entities for purposes of RFA.
* Benefit-cost analysis:
Table:
Benefits: Prevent DIF from becoming negative during a future financial
crisis;
Were the benefits or costs monetized?: No;
Estimated impacts (in millions): N/A;
Reasons cited for not monetizing benefits or costs: None;
Qualitative description of the benefits or costs?: Yes.
Benefits: Reduce procyclicality in the existing risk-based assessment
rates;
Were the benefits or costs monetized?: No;
Estimated impacts (in millions): N/A;
Reasons cited for not monetizing benefits or costs: None;
Qualitative description of the benefits or costs?: Yes.
Benefits: Loss of funds that could be used by the banking system;
Were the benefits or costs monetized?: No;
Estimated impacts (in millions): N/A;
Reasons cited for not monetizing benefits or costs: None;
Qualitative description of the benefits or costs?: Yes.
Increased competitive imbalances between banking entities and credit
unions;
Were the benefits or costs monetized?: No;
Estimated impacts (in millions): N/A;
Reasons cited for not monetizing benefits or costs: None;
Qualitative description of the benefits or costs?: Yes.
N/A = not applicable.
Source: GAO.
[End of table]
Public Comments:
* Number of days to comment: 30:
* Number of comments received: 4:
* Comments regarding regulatory analysis:
- Commenters expressed concerns that FDIC's analysis ignored historical
over-reserving, to which FDIC responded that its analysis encompassed
reported contingent loss reserves, and emphasized the importance of
public confidence as a reason that the fund be significantly positive
and not just not negative.
- One commenter argued that the analysis failed to account for interest
income from the reserve. FDIC responded that interest income was
included along with an explanation of the cyclical nature of stable
times interrupted by periods of high loss which significantly decrease
the fund.
Identifying Information:
* Agency: FDIC:
* Date of proposed rule: October 27, 2010:
* Date of final rule: December 20, 2010:
* Effective date: January 1, 2011:
* Federal Register citation: 75 Fed. Reg. 79286:
Issuer Review of Assets in Offerings of Asset-Backed Securities:
Rule Synopsis:
Section 945 of the Dodd-Frank Act mandated that the Securities and
Exchange Commission (SEC) issue a rule relating to the registration
statement required by issuers of asset-backed securities ("ABS"). The
rule must require issuers of asset-backed securities to perform a
review of the assets underlying the asset-backed security and disclose
the nature of the review. To implement Section 945 of the Dodd-Frank
Act, SEC adopted a new rule under the Securities Act of 1933 and
amendments to Regulation AB.[Footnote 77] The rule requires an issuer
of registered offerings of asset-backed securities to perform a review
of the assets underlying the securities that "must be designed and
effected to provide reasonable assurances that the disclosure regarding
the pool assets in the prospectus is accurate in all material
respects."[Footnote 78] The Regulation requires disclosure regarding:
"[t]he nature of the review of assets conducted by an [ABS] issuer";
"[t]he findings and conclusions of a review of assets conducted by an
[ABS] issuer or third party"; "[d]isclosure regarding assets in the
pool that do not meet the underwriting standards"; and "[d]isclosure
regarding which entity determined that the assets should be included in
the pool..."[Footnote 79]
Key Aspects of Regulatory Analyses:
* Identified problem to be addressed by regulation: Section 945 of the
Dodd-Frank Act reflects the testimony provided to Congress that due
diligence practices in ABS offerings had eroded significantly.
* Consideration of alternatives reflecting the range of statutory
discretion:
- SEC considered the entity which must conduct a review, and upon
reviewing comments, determined that the asset review must be conducted
by the issuer of the asset-backed security. However, the review only
applies to issuers of asset-backed securities in registered offerings,
and excludes those in unregistered offerings.
- Upon review of alternative review standards, SEC adopted minimum
review standards based on flexible, principles-based standards that
"would be workable across a wide variety of asset classes and issuers."
However, the particular type of review the issuer must perform is not
specified.
- SEC reviewed comments regarding the applicability and impact of third
parties conducting reviews. Ultimately, SEC determined an issuer may,
but is not required, to rely on a third-party to conduct the review.
However, if the issuer attributes the review's findings and conclusion
to the third party, the third party must be named in the registration
statement and be treated as an expert. But the issuer can use the same
findings and attribute the findings and conclusions to the issuer to
avoid needing to obtain the third party's consent to be named an
expert.
- SEC requires the issuer to (i) disclose the nature of the review
including if it is conducted by a third party, the scope of the review;
(ii) disclose the findings and conclusions; and (iii) disclose how the
assets in the pool deviate from the disclosed criteria and name the
entity that made the decision to include the exception loans in the
pool.
* PRA: SEC determined that this final rule contains information
collection requirements within the meaning of the act, which it
submitted to OMB. The requirements are entitled "Form S-1" (OMB Control
Number 3235-0065), "Regulation S-K" (OMB Control Number 3235-0071), and
"Rule S-3" (OMB Control Number 3235-0073). SEC estimates an increase in
burden hours with Form S-1 and S-3 of about 7,000 hours and $8.4
million. Form S-K will not impose any separate burden.
* RFA: The Commission certified in the proposing release that the
regulation would not have a significant impact on a substantial number
of small entities. The Commission requested written comment regarding
the certification, but no commenter responded to the request.
* Benefit-cost analysis:
Table:
Benefits: Increase investor protection;
Were the benefits or costs monetized?: No;
Estimated impacts (in millions): N/A;
Reasons cited for not monetizing benefits or costs: None;
Alternative description of the benefits or costs?: Yes.
Benefits: Reduce the cost of information asymmetry;
Were the benefits or costs monetized?: No;
Estimated impacts (in millions): N/A;
Reasons cited for not monetizing benefits or costs: None;
Alternative description of the benefits or costs?: Yes.
Benefits: Allow investors to more accurately price a securitization of
the asset pool;
Were the benefits or costs monetized?: No;
Estimated impacts (in millions): N/A;
Reasons cited for not monetizing benefits or costs: None;
Alternative description of the benefits or costs?: Yes.
Benefits: Allow investors to better understand the credit risk of the
asset pool;
Were the benefits or costs monetized?: No;
Estimated impacts (in millions): N/A;
Reasons cited for not monetizing benefits or costs: None;
Alternative description of the benefits or costs?: Yes.
More loan pools that conform to the disclosures;
Were the benefits or costs monetized?: No;
Estimated impacts (in millions): N/A;
Reasons cited for not monetizing benefits or costs: None;
Alternative description of the benefits or costs?: Yes.
More thorough and accurate reviews;
Were the benefits or costs monetized?: No;
Estimated impacts (in millions): N/A;
Reasons cited for not monetizing benefits or costs: None;
Alternative description of the benefits or costs?: Yes.
Facilitate comparability among reviews performed by different issuers;
Were the benefits or costs monetized?: No;
Estimated impacts (in millions): N/A;
Reasons cited for not monetizing benefits or costs: None;
Alternative description of the benefits or costs?: Yes.
Benefits: Assist rating agencies in assigning more informed credit
ratings;
Were the benefits or costs monetized?: No;
Estimated impacts (in millions): N/A;
Reasons cited for not monetizing benefits or costs: None;
Alternative description of the benefits or costs?: Yes.
Benefits: The third party expert liability could increase the quality
of the review.[Footnote 80];
Were the benefits or costs monetized?: No;
Estimated impacts (in millions): N/A;
Reasons cited for not monetizing benefits or costs: None;
Alternative description of the benefits or costs?: Yes.
Costs: Some issuers may incur additional costs to perform more
extensive reviews;
Were the benefits or costs monetized?: No;
Estimated impacts (in millions): N/A;
Reasons cited for not monetizing benefits or costs: None;
Alternative description of the benefits or costs?: Yes.
Costs: Some issuers, who otherwise may have performed a more thorough
review, may choose to accomplish no more than the minimum required
review;
Were the benefits or costs monetized?: No;
Estimated impacts (in millions): N/A;
Reasons cited for not monetizing benefits or costs: None;
Alternative description of the benefits or costs?: Yes.
Costs: Expert liability may increase the cost of due diligence, which
could render securitizations non-economic for some issuers;
Were the benefits or costs monetized?: No;
Estimated impacts (in millions): N/A;
Reasons cited for not monetizing benefits or costs: None;
Alternative description of the benefits or costs?: Yes.
Costs: Some asset classes may not have third party due diligence
providers;
Were the benefits or costs monetized?: No;
Estimated impacts (in millions): N/A;
Reasons cited for not monetizing benefits or costs: None;
Alternative description of the benefits or costs?: Yes.
Costs: Third party review firms are not registered with the SEC and
some are not subject to professional standards;
Were the benefits or costs monetized?: No;
Estimated impacts (in millions): N/A;
Reasons cited for not monetizing benefits or costs: None;
Alternative description of the benefits or costs?: Yes.
Costs: Disclosure burden;
Were the benefits or costs monetized?: No;
Estimated impacts (in millions): N/A;
Reasons cited for not monetizing benefits or costs: None;
Alternative description of the benefits or costs?: Yes.
Costs: Incremental professional costs of the collection of information
through forms S-1 and S-3;
Were the benefits or costs monetized?: Yes;
Estimated impacts (in millions): $8.4;
Reasons cited for not monetizing benefits or costs: N/A;
Alternative description of the benefits or costs?: Yes.
N/A = not applicable.
Source: GAO.
[End of table]
* Burden on Competition and Promotion of Efficiency, Competition, and
Capital: According to SEC, the regulation and amendments are designed
to improve investor protection, the quality of the assets underlying an
ABS, and increase transparency to market participants. SEC also states
that the amendments would improve investors' confidence in ABS and help
recovery in the ABS market with attendant positive effects on
efficiency, competition and capital formation.
Public Comments[Footnote 81]
* Number of days to comment: 33 days:
* Number of comments received: Over 50:
* Comments regarding regulatory analysis:
- Some commenters suggested including unregistered offering within the
requirement to prevent abuses from migrating to those offerings. Others
argued that the rules should apply only to registered ABS offerings.
- Some commenters stated that there are incentives not to conduct
adequate due diligence, which supports the need for a minimum standard
requirement by law.
- One commenter predicted that requiring third parties to be named in
the registration statement as experts will materially impact the cost
of due diligence services which will likely render securitizations non-
economic for issuers.
- Some commenters stated that it is possible that third parties engaged
by issuers to perform the review may be unwilling to consent to being
named in the registration statement as experts.
Identifying Information:
* Agency: SEC:
* Date of proposed rule: October 13, 2010:
* Date of final rule: January 25, 2011:
* Effective date: March 28, 2011:
* Federal Register citation: 76 Fed. Reg. 4231:
Disclosure for Asset-Backed Securities Required by Section 943 of the
Dodd-Frank Wall Street Reform and Consumer Protection Act:
Rule Synopsis:
Section 943 of the Dodd-Frank Act requires SEC to prescribe regulations
on the use of representations and warranties in the market for asset-
backed securities (ABS). The rule requires ABS securitizers to disclose
fulfilled and unfulfilled repurchase requests. Specifically, ABS
securitizers must disclose demand, repurchase and replacement history
for an initial 3-year look back period ending December 31, 2011, and
going forward on a quarterly basis. Further, ABS issuers must disclose
demand, repurchase and replacement history for the same 3-year look
back period in the body of the prospectus, and in periodic reports
filed going forward. The rule also requires nationally recognized
statistical rating organizations (NRSRO) to include information
regarding the representations, warranties and enforcement mechanisms
available to investors in an ABS offering in any report accompanying a
credit rating issued in connection with such offering, including a
preliminary credit rating.
Key Aspects of Regulatory Analyses:
* Identified problem to be addressed by regulation: According to SEC,
the effectiveness of the contractual provisions related to
representations and warranties has been questioned and lack of
responsiveness by sponsors to potential breaches of the representations
and warranties relating to the pool assets has been the subject of
investor complaint.
* Consideration of alternatives reflecting the range of statutory
discretion:
- Upon reviewing comments detailing impacts of duplicative filing, SEC
required all securitizers to complete the transaction file Form ABS-
15G, unless they are affiliated securitizers.
- While some commenters discouraged inclusion of municipal
securitizers, the final rules applies to municipal securitizers but
provides delayed compliance to permit municipal securitizers time to
observe how the rule operates for other securitizers and to better
prepare for implementation of the rule.
- SEC finalized disclosure form requirements including several changes
from the proposed forms based on comments including one commenter's
suggestion to insert a column to disclose the number of outstanding
principal balance and percentage of principal balance of the assets
originated by each originator in the pool.
- SEC finalized a 3-year historical look back time frame by balancing
commenter suggestions regarding the hardships of collecting data for a
more lengthy historical period against the benefit to investors.
Additionally, SEC adopted a quarterly reporting time frame for filing
requirements instead of the proposed monthly time frame based on
comments.[Footnote 82]
- SEC amended the Regulation AB transaction disclosure requirements and
included phasing in periods for inclusion in the prospectus.[ 83]
- Upon reviewing commenters' reasons for a standard, SEC's final rule
permitted the NRSROs to determine what similar securities should be
used in the disclosure comparison. Similarly, SEC reviewed comments
with regard to other NRSRO disclosure requirements.
* PRA: SEC determined that this final rule contains information
collection requirements within the meaning of the act, which it
submitted to OMB. The requirements are entitled "Form ABS-15G" (a new
information collection requirement), "Regulation S-K" (OMB Control
Number 3235-0071), and "Rule 17g-7" (a new information collection
requirement). SEC estimates the total internal burden hours associated
with Form ABS-15G will be 189,068 and the total external costs will be
$25,209,000. SEC determined that Regulation S-K will not impose any
separate burden. SEC estimates that it will take a total of 90,948
hours annually to comply with the Rule 17g-7 requirements, but no
professional costs were associated.
* RFA: The Commission certified in the proposing release that the
regulation would not have a significant impact on a substantial number
of small entities. The Commission requested written comment regarding
the certification, but no commenter responded to the request.
* Benefit-cost analysis:
Table:
Benefits: Provide demand, repurchase, and replacement information that
is easy to use and compare across securitizers;
Benefits or costs monetized?: No;
Estimated impacts (in millions): N/A;
Reasons cited for not monetizing benefits or costs: None;
Qualitative description of the benefits or costs?: Yes.
Benefits: Initial 3-year look back period should allow investors to
identify originators with underwriting deficiencies;
Benefits or costs monetized?: No;
Estimated impacts (in millions): N/A;
Reasons cited for not monetizing benefits or costs: None;
Qualitative description of the benefits or costs?: Yes.
Benefits: Quarterly report includes information for current quarter
only so investors will have flexibility to track activity over periods
of their choosing;
Benefits or costs monetized?: No;
Estimated impacts (in millions): N/A;
Reasons cited for not monetizing benefits or costs: None;
Qualitative description of the benefits or costs?: Yes.
Benefits: Securitizer may suspend quarterly obligation if it has no
reportable activity;
Benefits or costs monetized?: No;
Estimated impacts (in millions): N/A;
Reasons cited for not monetizing benefits or costs: None;
Qualitative description of the benefits or costs?: Yes.
Benefits: Cross-affiliates need not file same disclosures for a
particular transaction;
Benefits or costs monetized?: No;
Estimated impacts (in millions): N/A;
Reasons cited for not monetizing benefits or costs: None;
Qualitative description of the benefits or costs?: Yes.
Benefits: Disclosures filed on EDGAR or EMMA create centralized
repository;
Benefits or costs monetized?: No;
Estimated impacts (in millions): N/A;
Reasons cited for not monetizing benefits or costs: None;
Qualitative description of the benefits or costs?: Yes.
Benefits: One-year transition period for securitizers, and additional 3-
year transition for municipal securitizers, to better prepare;
Benefits or costs monetized?: No;
Estimated impacts (in millions): N/A;
Reasons cited for not monetizing benefits or costs: None;
Qualitative description of the benefits or costs?: Yes.
Benefits: Disclosures in prospectus and periodic reports under
Regulation AB will facilitate investor use of information;
Benefits or costs monetized?: No;
Estimated impacts (in millions): N/A;
Reasons cited for not monetizing benefits or costs: None;
Qualitative description of the benefits or costs?: Yes.
Disclosures about representations by NRSROs will provide information
before investment decision;
Benefits or costs monetized?: No;
Estimated impacts (in millions): N/A;
Reasons cited for not monetizing benefits or costs: None;
Qualitative description of the benefits or costs?: Yes.
Costs: External professional costs for preparing and filing required
disclosures;
Benefits or costs monetized?: Yes;
Estimated impacts (in millions): $25;
Reasons cited for not monetizing benefits or costs: N/A;
Qualitative description of the benefits or costs?: Yes.
Costs: Transition periods will delay availability of current
information to investors;
Benefits or costs monetized?: No;
Estimated impacts (in millions): N/A;
Reasons cited for not monetizing benefits or costs: None;
Qualitative description of the benefits or costs?: Yes.
Costs: Data collection for initial 3-year look back period may be
costly;
Benefits or costs monetized?: No;
Estimated impacts (in millions): N/A;
Reasons cited for not monetizing benefits or costs: None;
Qualitative description of the benefits or costs?: Yes.
Costs: Investors wanting cumulative data will need to make additional
efforts to compile it;
Benefits or costs monetized?: No;
Estimated impacts (in millions): N/A;
Reasons cited for not monetizing benefits or costs: None;
Qualitative description of the benefits or costs?: Yes.
Costs: Investors wanting information about affiliated transactions will
need to compile it;
Benefits or costs monetized?: No;
Estimated impacts (in millions): N/A;
Reasons cited for not monetizing benefits or costs: None;
Qualitative description of the benefits or costs?: Yes.
Costs: NRSROs incur additional costs;
Benefits or costs monetized?: No;
Estimated impacts (in millions): N/A;
Reasons cited for not monetizing benefits or costs: None;
Qualitative description of the benefits or costs?: Yes.
N/A = not applicable.
Source: GAO.
[End of table]
* Burden on Competition and Promotion of Efficiency, Competition, and
Capital: SEC determined that the ultimate effect of the regulation
would be that of better allocative efficiency and improved capital
formation. Because the rules generally apply equally to all
securitizers, and ABS transactions, SEC did not believe the rules would
have an impact on competition.
Public comments[Footnote 84]:
* Number of days to comment: 42:
* Number of comments received: over 40:
* Comments regarding regulatory analysis:
- Commenters provided suggestions for the transition time frame varying
from 6 months to 2 years from the effective date of the rule.
- One commenter argued that the PRA estimate for Rule 17g-7
underestimated the time needed to gather required information, but SEC
found that the commenter overlooked additional agency analysis of the
time requirements and thus made no change.
Identifying Information:
* Agency: SEC:
* Date of proposed rule: October 4, 2010:
* Date of final rule: January 26, 2011:
* Effective date: March 28, 2011:
* Federal Register citation: 76 Fed. Reg. 4489:
Conformance Period for Entities Engaged in Prohibited Proprietary
Trading or Private Equity Fund or Hedge Fund Activities:
Rule Synopsis:
Section 619(c)(2) of the Dodd-Frank Act generally requires banking
entities and nonbank financial holding companies supervised by the
Board of Governors of the Federal Reserve System (Board) to conform
their activities and investments to the restrictions of Section 619
(Volcker Rule) within 2 years of the effective date of the Volcker
Rule's requirements. The Volcker Rule generally prohibits banking
entities from engaging in proprietary trading or from investing in,
sponsoring or having certain relationship with a hedge fund or private
equity fund. The final rule details the provisions and requirements a
banking entity or nonbank financial company supervised by the Board
must follow to request an extension of time to conform its activities
to the Volcker Rule.
Key Aspects of Regulatory Analyses:
* Identified problem to be addressed by regulation: The Volcker Rule
includes provisions relative to illiquid assets. The final rule was
issued in advance of the Volcker Rule regulations to craft the
procedures and requirements necessary to receive an extension to the
time frame mandated to conform to the Volcker Rule requirements for
divestiture.
* Consideration of alternatives reflecting the range of statutory
discretion:
- While commenters requested one single extension of three years,
instead of three extensions of 1 year, the Board determined the Volcker
Rule only permitted 1 year extensions per request. Additionally, the
Board clarified, at commenter's request, that the extensions were
applicable to both banking entities and nonbank financial companies
supervised by the Board.
- Commenters made multiple suggestions regarding alterations to the
proposed definition of illiquid assets, but the Board maintained the
proposed definition in large part because of restrictions included in
the Volcker Rule.
- While some commenters encouraged a more lenient standard, the Board's
final rule maintained the proposed rules for determination of
"principally invested" when used to determine the availability of the
extended transition period. Additionally, after consideration of
commenters' perspectives, the Board also maintained the statutorily
mandated May 1, 2010, date used to determine illiquidity of assets.
- The Board, upon review of commenter requests, determined that the
Volcker Rule provides that any extended transition granted by the Board
will automatically, upon operation of law, terminate on the date on
which the contractual obligation to invest in the illiquid fund
terminates.
- Based on commenter requests, the Board modified the final rule to
permit for a request at least 180 days prior to the expiration of the
applicable period, and the Board will seek to act on any extension
request no later than 90 days after receipt of all necessary
information relating to the request.
- The Board modified those factors used to determine the
appropriateness of an extension, including adding whether divestiture
or conformance of the activity or investment would involve or result in
a material conflict of interest between the banking entity and
unaffiliated clients, customers or counterparties.
- The Board broadened the types of documents that may be considered in
determining whether a hedge fund or private equity fund is
contractually committed to principally invest in illiquid assets or
contractually obligated to invest or remain invested in the fund.
* PRA: The Board determined that this final rule contains information
collection requirements within the meaning of the act, which it
submitted to OMB. The Board estimates the total internal burden hours
associated with the rule will be 21,600, but does not attempt to
quantify the total internal costs.
* RFA: The Board determined that the regulation would not have a
significant impact on a substantial number of small entities. It based
this determination on its estimate that only 5 percent of small banking
entities likely would file an extension request under the rule.
* Benefit-cost analysis: None:
Public comments:
* Number of days to comment: 45:
* Number of comments received: 12:
* Comments regarding regulatory analysis:
- Some commenters argued that the PRA estimate underestimated the time
needed to prepare a request for an extension and relevant supporting
information. One commenter specifically noted that a banking entity
could potentially have to submit up to four extension requests with
respect to a single illiquid fund. In light of those comments, the
Board revised its initial request from 1 to 3 hours and estimates that
each of the 720 banking entities that are estimated to file an
extension will file, on average, 10 requests, for a total estimated
annual burden of 21,600 hours. This is in contrast to the initial
estimate amount of annual burden of 720 hours.
Identifying Information:
* Agency: Board of Governors of the Federal Reserve System:
* Date of proposed rule: November 26, 2010:
* Date of final rule: February 14, 2011:
* Effective date: April 1, 2011:
* Federal Register citation: 76 Fed. Reg. 8265:
Assessments, Large Bank Pricing:
Rule Synopsis:
FDIC charges insured depository institutions an amount for deposit
insurance equal to the deposit insurance assessment base multiplied by
a risk-based assessment rate. The Dodd-Frank Act directs FDIC to amend
its regulations to define the assessment base used for calculating
deposit insurance assessments. The Dodd-Frank Act requires that the
assessment base be defined as an institution's "average consolidated
total assets" minus "average tangible equity." The rule defines the
methodology for calculating these amounts, determines the basis for
reporting the amounts, and defines "tangible equity." The Dodd-Frank
Act also requires that FDIC determine whether and to what extent
adjustments to the assessment base are appropriate for banker's
banks[Footnote 84] and custodial banks. The rule outlines these
adjustments and provides a definition of "custodial bank." Due to the
change in the assessment base, FDIC also defines certain adjustments to
the assessment calculation that were added to better account for risks
among insured depository institutions (IDI) based on their funding
sources. The required change in the assessment base prompted FDIC to
modify its assessment rate system and assessment rate schedule. The
Dodd-Frank Act also continued FDIC authority to declare dividends when
the reserve ratio of the deposit insurance fund (DIF) is at least 1.5
percent and granted FDIC authority to suspend or limit dividends from
the DIF.[Footnote 85] The rule provides that dividends be suspended
indefinitely when the DIF reserve ratio exceeds 1.5 percent. The rule
also amends the assessment system applicable to large insured
depository institutions.
Key Aspects of Regulatory Analyses:
* Identified problem to be addressed by regulation: According to FDIC,
the purpose of the regulation is to address requirements under the Dodd-
Frank Act and to provide a revised assessment rate schedule. The
overall FDIC goal is increasing the designated reserve ratio (DRR) to
ensure DIF maintains a positive balance during a future crisis of the
magnitude of the 2007-2009 financial crisis. Additionally, the goal is
to set rate schedules that are consistent and moderate throughout
economic and credit cycles.
* Consideration of alternatives reflecting the range of statutory
discretion:
- FDIC determined that goodwill and intangibles should not be deducted
in determining average consolidated total assets.
- FDIC considered comments addressing the timing of requirements for
IDI reporting of consolidated total equity and average tangible equity
and imposed more frequent reporting requirements on larger
institutions.
- FDIC determined that transactions between affiliated banks should not
be excluded from the assessment base.
- FDIC considered and rejected comments concerning the deductions from
the assessment base for banker's banks and amended the calculation of
the assessment base adjustment for custodial banks.
- FDIC considered comments on adjustments to the rate base based on the
amount of unsecured debt and the amount of brokered deposits held by
the institution.
- In the proposed rule, FDIC had proposed suspending dividends from the
DIF "permanently." The final rule modified the proposal by suspending
dividends "indefinitely" and noted that the rule is not intended to,
and could not, abrogate the authority of future FDIC Boards of
Directors to adopt a different rule governing dividends.
- FDIC considered comments concerning the appropriateness of the
changes to the assessment rate schedule and the speed at which these
rates would restore the DIF to the desired level. The FDIC also
considered comments on future rate schedules and their effect on the
DIF.
- The regulation amends the assessment system applicable to large
IDIs[Footnote 86] by using scorecards designed to assess the risk that
a large IDI poses to the DIF by measuring its financial performance and
its ability to withstand stress and the relative magnitude of potential
losses to the FDIC in the event of a large institutional failure. The
scorecard combines CAMELS ratings and certain financial measures into
two scorecards--one for most large IDIs and another for highly complex
IDIs. Commenters questioned the structure and the complexity of the
large bank assessment system. FDIC also received and considered a
number of comments related to scorecard measures and assumptions.
- FDIC retains the ability to adjust the scorecard results for large
and highly complex institutions based on significant risk factors not
captured in the scorecards. Commenters questioned the scale and the
need for this adjustment.
* PRA: FDIC did not conduct a PRA analysis because no collection of
information is required for this rule.
* RFA: FDIC determined that the rule would not be subject to the RFA
requirements under the exclusion for rules of particular applicability
relating to rates or corporate or financial structures, or practices
relating to such rates or structures. FDIC noted that the final rule
relates to the rates imposed on insured depository institutions for
deposit insurance, to the risk-based assessment system components that
measure risk and weigh risk in determining an insured depository
institution's assessment rate and to the assessment base on which rates
are charged and concluded that a regulatory flexibility analysis is not
required. However, FDIC still conducted an analysis and concluded that
the new assessment base and rates would reduce the quarterly assessment
on 99 percent of small institutions by an average of $10,320 and would
reduce the percentage of assessments borne by small institutions.
* Benefit-cost analysis:
Table:
Benefits: Prevent the DIF from becoming negative during a future crisis
of a similar magnitude of the 2007-2009 financial crisis;
Were the benefits or costs monetized?: No;
Estimated impacts (in millions): N/A;
Reasons cited for not monetizing benefits or costs: None;
Qualitative description of the benefits or costs?: Yes.
Benefits: Reduce procyclicality in the existing risk-based assessment
rates;
Were the benefits or costs monetized?: No;
Estimated impacts (in millions): N/A;
Reasons cited for not monetizing benefits or costs: None;
Qualitative description of the benefits or costs?: Yes.
Costs: Initial cost for large institutions to transition their systems
in order to report the information necessary;
Were the benefits or costs monetized?: No;
Estimated impacts (in millions): N/A;
Reasons cited for not monetizing benefits or costs: None;
Qualitative description of the benefits or costs?: Yes.
Costs: Initial transaction cost to all IDIs to calculate new assessment
base;
Were the benefits or costs monetized?: No;
Estimated impacts (in millions): N/A;
Reasons cited for not monetizing benefits or costs: None;
Qualitative description of the benefits or costs?: Yes.
N/A = not applicable.
Source: GAO.
[End of table]
Public Comments:
* Number of days to comment: 47:
* Number of comments received: 55:
* Comments regarding regulatory analysis:
- Several commentators questioned the validity of the statistical
analysis of the rule because it was calibrated using data on small bank
failures and would reflect the risks or behaviors of large
institutions. FDIC responded that it did not use small bank data, but
used statistical techniques to acquire data from large institutions.
- One commentator expressed concern that the analysis focused on
historical information, and may not be relevant to future events. In
response, FDIC recognized that any statistical analysis is backward-
looking but that historical data provides the best means for analyzing
future risk.
- A few commentators suggested errors in FDIC's analysis. FDIC stated
that their analysis has proven accurate in predicting failures from
2006 through 2009.
Identifying Information:
* Agency: FDIC:
* Date of proposed rules: October 27, 2010; November 24, 2010:
* Effective date: April 1, 2011:
* Date of final rule: February 25, 2011:
* Federal Register citation: 76 Fed. Reg. 10672:
Shareholder Approval of Executive Compensation and Golden Parachute
Compensation:
Rule Synopsis:
Section 951 of the Dodd-Frank Act amends the Securities Exchange Act of
1934, requiring publicly traded companies to conduct a separate
shareholder advisory vote on compensation for executives at least every
three years and a vote on the frequency of these votes at least every
six years. The amendment also requires a shareholder advisory vote on
whether to approve certain so-called ''golden parachute'' compensation
arrangements in connection with a business combination.[Footnote 87]
Section 951 provides that SEC may exempt an issuer from the advisory
voting requirements. In determining whether to make an exemption, SEC
is to take into account, among other considerations, whether the
requirements disproportionately burden small issuers. The rule requires
a separate shareholder vote on compensation of executives and a vote on
the frequency of these votes for the first annual or other meeting of
shareholders occurring on or after January 21, 2011.
Key Aspects of Regulatory Analyses:
* Identified problem to be addressed by regulation: The proposed and
final rules do not state the problem being addressed beyond stating
that the rule is designed to implement the requirements of Section 951
of the Dodd-Frank Act.
* Consideration of alternatives reflecting the range of statutory
discretion:
- The rule does not provide any specific language or resolution format
for the advisory vote on executive compensation, but the rules provide
that the proposal must include language indicating that the vote is on
compensation paid to named executive officers and include a non-
exclusive example of a resolution that satisfies the requirements.
- Companies may solicit shareholder votes on a range of compensation
matters to obtain specific feedback on the company's compensation
policies and programs.
- Results of the advisory votes on executive compensation and the vote
frequency must be disclosed within four business days after the meeting
at which the vote is held.
- The rule clarifies that the advisory vote on executive compensation
is required only at shareholders meetings at which proxies will be
solicited for the election of directors, or a special meeting in lieu
of such meeting, and the vote is required not less frequently than
every 3 calendar years. The vote on frequency is required not less than
every 6 calendar years.
- SEC determined not to exempt smaller reporting companies from the
advisory votes, but companies with a public float of less than $75
million are not required to comply with the advisory votes on executive
compensation or frequency of such votes until January 21, 2013. The
exemption does not apply to the rules applicable to golden parachute
packages.
- Companies must disclose decisions regarding how frequently they will
conduct the executive compensation advisory votes in light of the
results of the vote on frequency.
- Companies must disclose whether and, if so, how they have considered
the most recent vote and how that consideration has affected their
executive compensation policies and decisions.
- The rule generally requires disclosure of executive officers' golden
parachute arrangements in proxy or consent solicitations seeking
shareholder approval in connection with an acquisition, merger,
consolidation, or proposed sale or other disposition of all or
substantially all of the assets. Golden parachute arrangements between
the acquiring company and the named executive officers of the target
company are not required to be subject to a vote.
- Disclosure of golden parachute arrangements related to the
transaction must be in both tabular and narrative format. The
regulation specified the content of the disclosures, including
identification of types of compensation and that disclosure is required
only for amounts payable in connection with the transaction subject to
shareholder approval.
- The rule requires disclosure of golden parachute compensation in
connection with certain going-private transactions, tender offers and
certain other transactions.
- The rule requires issuers to conduct a separate shareholder advisory
vote on golden parachute compensation required to be disclosed in
connection with mergers and similar transactions. Issuers will not be
required to include in the merger proxy a separate shareholder vote if
the compensation has previously been included in the company's
disclosures that were subject to a prior advisory vote.
- A shareholder vote to approve executive compensation for companies
that received financial assistance under the Troubled Asset Relief
Program satisfies the requirement to conduct a shareholder advisory
vote on executive compensation.
* PRA: SEC determined that this final rule contains information
collection requirements within the meaning of the act, which it
submitted to OMB. The title for the collection of information is: "Form
8-K," "Form 10," "Regulation 14A and Schedule 14A," "Regulation 14C and
Schedule 14C," "Reg. S-K," "Form S-1," "Form S-4," "Form S-11,"
"Schedule TO," "Form F-4," "Schedule 14D-9," "Schedule 13E-3," and
"Form N-2." The new rules will increase existing disclosure burdens for
proxy statements, registration statements, solicitation/recommendation
statements, and going-private schedules. The new rules also will
increase disclosure burdens for current reports on Form 8-K. SEC
estimates the total internal burden hours associated with reporting
required for the executive compensation advisory vote, and the vote for
the frequency of executive compensation votes will be 20,713 and the
total external costs will be $2,766,800. SEC estimates that the
internal hours required to report on advisory votes for "golden
parachute" compensation is estimated at 4,229 and total external costs
will be $5,074,400.
* RFA: SEC decided to provide a 2-year exemption period for smaller
reporting companies, generally defined as issuers with public float of
less than $75 million. This exemption does not apply to "golden
parachute" advisory votes. SEC determined that the rule would affect
some companies that are small entities.
* Benefit-cost analysis:
Table:
Benefits: Provide timely information to shareholders about issuer's
plans for future shareholder advisory votes;
Were the benefits or costs monetized?: No;
Estimated impacts (in millions): N/A;
Reasons cited for not monetizing benefits or costs: None;
Qualitative description of the benefits or costs?: Yes.
Benefits: Provide potentially useful information for voting and
investment decisions;
Were the benefits or costs monetized?: No;
Estimated impacts (in millions): N/A;
Reasons cited for not monetizing benefits or costs: None;
Qualitative description of the benefits or costs?: Yes.
Benefits: Reduces confusion and burden for issuers with outstanding
TARP indebtedness by specifying that two separate annual shareholder
votes are not required;
Were the benefits or costs monetized?: No;
Estimated impacts (in millions): N/A;
Reasons cited for not monetizing benefits or costs: None;
Qualitative description of the benefits or costs?: Yes.
Benefits: Benefit smaller reporting companies by providing them a 2-
year delayed compliance date;
Were the benefits or costs monetized?: No;
Estimated impacts (in millions): N/A;
Reasons cited for not monetizing benefits or costs: None;
Qualitative description of the benefits or costs?: Yes.
Benefits: Reduce confusion among shareholders and issuers regarding
advisory votes and preserve the ability of shareholders to make
proposals on executive compensation;
Were the benefits or costs monetized?: No;
Estimated impacts (in millions): N/A;
Reasons cited for not monetizing benefits or costs: None;
Qualitative description of the benefits or costs?: Yes.
Benefits: Provide more detailed, useful and comprehensive information
to shareholders regarding golden parachute compensation;
Were the benefits or costs monetized?: No;
Estimated impacts (in millions): N/A;
Reasons cited for not monetizing benefits or costs: None;
Qualitative description of the benefits or costs?: Yes.
Benefits: Disclosure of golden parachute compensation will allow timely
and more accurate assessment of the combination transaction and
evaluation of the compensation;
Were the benefits or costs monetized?: No;
Estimated impacts (in millions): N/A;
Reasons cited for not monetizing benefits or costs: None;
Qualitative description of the benefits or costs?: Yes.
Benefits: Eliminate uncertainty among issuers and other market
participants regarding what is necessary to under the SEC proxy rules
when conducting a required shareholder vote;
Were the benefits or costs monetized?: No;
Estimated impacts (in millions): N/A;
Reasons cited for not monetizing benefits or costs: None;
Qualitative description of the benefits or costs?: Yes.
Costs: Reporting costs of new disclosure requirements;
Were the benefits or costs monetized?: Yes;
Estimated impacts (in millions): $7.8 and 24,942 hours of company
personnel time;
Reasons cited for not monetizing benefits or costs: NA;
Qualitative description of the benefits or costs?: Yes.
Costs: Increased costs of mergers;
Were the benefits or costs monetized?: No;
Estimated impacts (in millions): N/A;
Reasons cited for not monetizing benefits or costs: None;
Qualitative description of the benefits or costs?: Yes.
Costs: Indirect costs related to obtaining compensation information;
Were the benefits or costs monetized?: No;
Estimated impacts (in millions): N/A;
Reasons cited for not monetizing benefits or costs: None;
Qualitative description of the benefits or costs?: Yes.
Costs: Additional costs for private companies to takeover public
companies; Were the benefits or costs monetized?: No; Estimated impacts
(in millions): N/A; Reasons cited for not monetizing benefits or costs:
None; Qualitative description of the benefits or costs?: Yes.
Costs: Increased cost associated with drafting disclosure of results of
shareholder votes and any effect on compensation policies; Were the
benefits or costs monetized?: No; Estimated impacts (in millions): N/A;
Reasons cited for not monetizing benefits or costs: None; Qualitative
description of the benefits or costs?: Yes.
Costs: Certain additional costs imposed on shareholders; Were the
benefits or costs monetized?: No; Estimated impacts (in millions): N/A;
Reasons cited for not monetizing benefits or costs: None; Qualitative
description of the benefits or costs?: Yes.
N/A = not applicable.
Source: GAO.
[End of table]
* Burden on Competition and Promotion of Efficiency, Competition, and
Capital: According to SEC, the increased transparency will allow
investors to make informed voting and investment decisions, leading to
increased efficiency and competitiveness in U.S. capital markets. SEC
states that the reporting rules will be applied consistently across
different types of transactions, thus ensuring competition.
Public Comments[Footnote 88]
* Number of days to comment: 31:
* Number of comments received: 66:
* Comments regarding regulatory analysis:
- One commenter argued that SEC left out potential costs associated
with the rule, specifically costs associated with proxy advisory firms,
the potential for companies to retain additional consulting services
relating to their compensation decisions and say-on-pay votes,
additional costs associated with submitting no-action letter requests
under Rule 14a-8, and increased costs due to increased demand for proxy
solicitation and other shareholder communications services. SEC decided
these additional costs will not arise as a result of the rule, but
instead as a result of requirements under new Section 14A of the
Exchange Act.
Identifying Information:
* Agency: SEC:
* Date of proposed rule: October 28, 2010:
* Date of final rule: February 2, 2011:
* Effective date: April 4, 2011:
* Federal Register citation: 76 Fed. Reg. 6010:
Retail Foreign Exchange Transactions:
Rule Synopsis:
The final rule imposes requirements for foreign currency futures,
options on futures, and options that an insured depository institution
supervised by FDIC engages in with retail customers.[Footnote 89] The
final rule also imposes requirements on other foreign currency
transactions that are functionally or economically similar, including
so-called "rolling spot" transactions that an individual enters into
with insured depository institution, usually through the Internet or
other electronic platform, to transact in foreign currency. The
regulations do not apply to traditional foreign currency forwards,
spots, or swap transactions that an insured depository institution
engages in with business customers to hedge foreign exchange risk.
Institutions must seek approval before engaging in a retail forex
business by providing FDIC with written notice and obtaining FDIC's
written consent. The institution must comply with capital and
operational standards and have in place policies and procedures to
prevent unfair trade practices and ensure fair settlement practices.
FDIC's rule is modeled on CFTC's similar rule for retail foreign
exchange transactions and is substantially similar to retail forex
rules adopted by OCC and proposed by the Federal Reserve.
Key Aspects of Regulatory Analyses:
* Identified problem to be addressed by regulation: As amended by the
Dodd-Frank Act, the Commodity Exchange Act provides that a U.S.
financial institution for which there is a federal regulator shall not
enter into, or offer to enter into, a retail foreign exchange (forex)
transaction except pursuant to a rule or regulation of a federal
regulatory agency allowing the transaction under such terms and
conditions as the federal regulatory agency shall prescribe (a "retail
forex rule"). The rule details the appropriate requirements with
regards to disclosure, recordkeeping, capital and margin, reporting,
business conduct, and documentation.
* Consideration of reasonable alternatives reflecting the range of
statutory discretion:
- FDIC determined that the Interagency Statement on Retail Sales of
Nondeposit Investment Products should apply to retail forex
transactions.
- FDIC determined that the rule should not apply to a FDIC-supervised
insured depository institution's foreign branches conducting retail
forex transactions abroad with a non-U.S. customer. Commenters had
expressed concerns that such transactions are subject to foreign
regulatory requirements that could be inconsistent with the retail
forex rule.
- FDIC determined that the definition of "retail forex transaction"
included leveraged, margined, or bank-financed rolling spot forex
transactions. However, retail forex transactions do not include
leveraged, margined, or bank-financed forex forwards that create an
enforceable obligation to deliver between a seller and buyer that have
the ability to deliver and accept delivery, respectively, in connection
with their line of business.
- The final rule excludes identified banking products from the
definition of "retail forex transaction."
- FDIC determined that a customer should be able to offset retail forex
transactions in a particular manner, if he or she so chooses, default
offset rules notwithstanding.
- FDIC determined that the risk disclosure statement provided to retail
forex customers should disclose the percentage of retail forex accounts
that earned a profit and the percentage that earned a loss.
Additionally, the rule requires a disclosure that when a retail
customer loses money trading, the FDIC-supervised institution makes
money.
- FDIC determined that the retail forex disclosure should not be
combined with other disclosures made by FDIC supervised insured
depository institutions and that a separate risk disclosure document is
required. FDIC considered a number of issues concerning the scope and
nature of disclosures required and permitted.
- FDIC permitted the use of recorded oral phone retail forex
transaction orders in certain circumstances for recordkeeping purposes.
- The final rules require an institution to collect margin when
entering into a retail forex transaction. FDIC considered various
aspects of margin requirements imposed on retail forex customers,
including collection times in response to margin calls. Additionally,
FDIC permits margin collected from retail forex customers to be placed
into an omnibus or commingled account if the bank keeps records of each
retail forex customer's margin balance.
- FDIC-supervised institutions may not enter into a retail forex
transaction to be executed at a price that is not at or near prices at
which other customers have executed materially similar transactions.
Additionally, institutions may not change prices after order
confirmation or provide a retail forex customer with a new bid price
that is higher (or lower) than previously provided with providing a new
ask price that is similarly higher (or lower) as well.
- Institutions must mark the customer's open retail forex positions and
the value of the customer's margin account to market daily.
- FDIC determined that customers must receive a monthly account
statement and the statement may be provided electronically.
- FDIC determined that an institution must obtain a specific
authorization from customer before a effecting retail forex
transaction.
- Institutions must establish reasonable policies and procedures to
address front running.
- An FDIC-supervised insured depository institution must disclose that
retail forex transactions are not FDIC-insured.
* PRA: FDIC determined that this final rule contains information
collection requirements within the meaning of the act, and therefore
FDIC submitted the rule to OMB for review. FDIC estimated that the
total estimated annual burden for regulated entities subject to the
regulation would be approximately 6,038 hours. FDIC determined that the
rule imposed filing requirements, disclosure requirements, and
recordkeeping requirements.
* RFA: FDIC estimated that no small banks under its supervision would
be affected by the rule.
* Benefit-cost analysis: None:
Public Comments:
* Number of days to comment: 30:
* Number of comments received: 6:
* Comments regarding regulatory analysis: None:
Identifying Information:
* Agency: FDIC:
* Date of proposed rule: May 17, 2011:
* Date of final rule: July 12, 2011:
* Effective date: July 15, 2011:
* Federal Register citation: 76 Fed. Reg. 40779:
Retail Foreign Exchange Transactions:
Rule Synopsis:
This rule authorizes national banks, federal branches and agencies of
foreign banks, and their operating subsidiaries to engage in off-
exchange transactions in foreign currency with retail customers. The
rule also describes various requirements with which national banks,
federal branches and agencies of foreign banks, and their operating
subsidiaries must comply to conduct such transactions. The rule is
modeled on CFTC's similar rule for retail foreign exchange transactions
and is similar to FDIC's rule.
Key Aspects of Regulatory Analyses:
* Identified problem to be addressed by regulation: The Dodd-Frank Act
provided that a U.S. financial institution for which there is a federal
financial regulator shall not enter into an off-exchange foreign
exchange transaction with a retail customer except pursuant to a rule
or regulation of a relevant federal regulatory agency allowing the
transaction. This rule details the appropriate requirements with
regards to disclosure, recordkeeping, capital and margin, reporting,
business conduct, and documentation requirements that the Office of the
Comptroller of the Currency (OCC) determined were necessary to protect
retail customers from fraudulent practices.
* Consideration of alternatives reflecting the range of statutory
discretion:
- Nature of disclosure, recordkeeping, capital and margin reporting,
business conduct, and documentation requirements:
- OCC determined that the Interagency Statement on Retail Sales of
Nondeposit Investment Products applied to retail forex transactions.
- OCC determined that the retail forex rule should not apply to
national banks' foreign branches conducting retail forex transactions
abroad because they are subject to any applicable disclosure,
recordkeeping, capital, margin, reporting, and other requirements of
applicable foreign law.
- OCC determined that leveraged, margined, or bank-financed forex
forwards (including rolling spot forex transactions) should be
regulated as retail forex transactions and included a provision in the
final rule that allows OCC to exempt specific transactions or kinds of
transactions from the definition of "retail forex transaction."
- A leveraged, margined or bank-financed forex forward is a retail
forex transaction unless it creates an enforceable obligation to
deliver between a seller and a buyer that have the ability to deliver
and accept delivery, respectively, in connection with their line of
business.
- OCC determined that a national bank is required to close out
offsetting long and short positions in a retail forex account, but that
a customer should be able to offset retail forex transaction in a
particular manner, if he or she so chooses.
- Identified banking products are excluded from the definition of
"retail forex transaction."
- OCC required disclosure of the percentage of profitable retail forex
accounts and requires that the risk disclosure statement include a
disclosure that when a retail customer loses money trading, the dealer
makes money.
- OCC considered comments on required margin and permitted a national
bank to place margin collected from retail forex customers into an
omnibus or commingled account and required that the margin account be
marked to market daily.
- OCC agreed with a commenter that monthly statements may be provide
electronically.
- OCC agreed with a commenter and allowed customer authorization to
effect a particular trade to be provided in writing or orally.
- National banks must establish reasonable policies, procedures, and
controls to address front running. Effective firewalls and information
barriers are reasonable policies, procedures, and controls.
- OCC determined that rather than allow requoting a national bank may
reject orders and request that a customer submit a new order.
* PRA: OCC determined that this final rule contains information
collection requirements within the meaning of the act, and therefore
submitted the rule to OMB for review. The requirements are broken down
into information collection requirements in Sections 48.4-48.7, 48.9-
48.10, 48.13, and 48.15-48.16, reporting requirements under Section
48.4, disclosure requirements under Sections 48.5, 48.6, 48.10,
48.13(b), 48.13(c), 48.13(d), 48.15, and 48.16, and recordkeeping
requirements under Sections 48.7, 48.13(a), and 48.9. OCC estimated the
total reporting burden of the rule to be 672 hours, the total
disclosure burden to be 54,166 hours, the total recordkeeping burden to
be 12,416 hours, and the total annual burden to be 67,254 hours.
* RFA: OCC determined that the regulation would not have a significant
impact on a substantial number of small entities. Therefore, a RFA was
not required and not completed.
* Benefit-cost analysis:
Table:
Benefits: None listed;
Were the benefits or costs monetized?: No;
Estimated impacts (in millions): N/A;
Reasons cited for not monetizing benefits or costs: None;
Qualitative description of the benefits or costs?: No.
Costs: Provide the OCC with prior notice and obtain a written no-
objection letter;
Were the benefits or costs monetized?: Yes;
Estimated impacts (in millions): $36.55 total for listed costs;
Reasons cited for not monetizing benefits or costs: N/A;
Qualitative description of the benefits or costs?: No.
Costs: Modify retail forex agreements to include the required customer
dispute disclosure;
Were the benefits or costs monetized?: Yes;
Estimated impacts (in millions): ";
Reasons cited for not monetizing benefits or costs: N/A;
Qualitative description of the benefits or costs?: No.
Costs: Modify systems to enable the bank to disclose the ratio of
profitable accounts;
Were the benefits or costs monetized?: Yes;
Estimated impacts (in millions): ";
Reasons cited for not monetizing benefits or costs: N/A;
Qualitative description of the benefits or costs?: No.
Costs: Establish or modify policies and procedures for customer due
diligence and recordkeeping;
Were the benefits or costs monetized?: Yes;
Estimated impacts (in millions): ";
Reasons cited for not monetizing benefits or costs: N/A;
Qualitative description of the benefits or costs?: No.
Costs: Modify systems to comply with the recordkeeping requirements in
§48.7;
Were the benefits or costs monetized?: Yes;
Estimated impacts (in millions): ";
Reasons cited for not monetizing benefits or costs: N/A;
Qualitative description of the benefits or costs?: No.
Costs: Modify account statements to comply with the customer reporting
requirements in §48.10;
Were the benefits or costs monetized?: Yes;
Estimated impacts (in millions): ";
Reasons cited for not monetizing benefits or costs: N/A;
Qualitative description of the benefits or costs?: No.
Costs: Provide the required risk disclosures;
Were the benefits or costs monetized?: Yes;
Estimated impacts (in millions): ";
Reasons cited for not monetizing benefits or costs: N/A;
Qualitative description of the benefits or costs?: No.
Costs: Establish and implement internal rules, procedures, and controls
to comply with trading and operational standards in §48.13;
Were the benefits or costs monetized?: Yes;
Estimated impacts (in millions): ";
Reasons cited for not monetizing benefits or costs: N/A;
Qualitative description of the benefits or costs?: No.
Costs: Modify systems to comply with trading and operational standards;
Were the benefits or costs monetized?: Yes;
Estimated impacts (in millions): ";
Reasons cited for not monetizing benefits or costs: N/A;
Qualitative description of the benefits or costs?: No.
Costs: Establish or modify systems and policies and procedures to
comply with the margin requirements in §48.9;
Were the benefits or costs monetized?: Yes;
Estimated impacts (in millions): ";
Reasons cited for not monetizing benefits or costs: N/A;
Qualitative description of the benefits or costs?: No.
Costs: Obtain specific authorization to trade;
Were the benefits or costs monetized?: Yes;
Estimated impacts (in millions): ";
Reasons cited for not monetizing benefits or costs: N/A;
Qualitative description of the benefits or costs?: No.
N/A = not applicable.
Source: GAO.
[End of table]
* Unfunded Mandates Reform Act of 1995: OCC determined that the rule
will not result in expenditures by state, local, and tribal
governments, or by the private sector, of $100 million or more in any 1
year. Accordingly, the rule is not subject to Section 202 of the
Unfunded Mandates Act.
* Congressional Review Act (CRA): OCC determined that the regulation
did not and was not likely to result in a $100 million or more annual
economic effect and, therefore, was not a "major rule" under the CRA.
Public Comments:
* Number of days to comment: 31:
* Number of comments received: 3:
* No comments were made regarding regulatory analysis:
Identifying Information:
* Agency: OCC:
* Date of proposed rule: April 22, 2011:
* Date of final rule: July 14, 2011:
* Effective date: July 15, 2011:
* Federal Register citation: 76 Fed. Reg. 41375:
Exemptions for Advisers to Venture Capital Funds, Private Fund Advisers
with Less Than $150 Million in Assets Under Management, and Foreign
Private Advisers:
Rule Synopsis:
Prior to enactment of the Dodd-Frank Act, many investment advisers
relied on an exemption to registration under the Advisers Act for
"private advisers" who had fewer than 15 clients and met other
criteria. The Dodd-Frank Act eliminated this exemption, which will
result in additional investment advisers registering with SEC. The
repeal of the exemption was primarily designed to require advisers to
"private funds" to register with SEC. Private funds include hedge
funds, private equity funds and certain other types of privately
offered pooled investment vehicles that are excluded from the
definition of "investment company" under the Investment Company Act of
1940.
The Dodd-Frank Act provides a registration exemption for an investment
adviser that solely advises "venture capital funds" and directs SEC to
define "venture capital fund." Additionally, the Dodd-Frank Act directs
SEC to provide an exemption from registration for any investment
adviser that solely advises private funds if the adviser has assets
under management in the United States of less than $150 million. The
Dodd-Frank Act requires that SEC require advisers relying on these two
exemptions to maintain records and make reports "as the Commission
determines necessary or appropriate in the public interest or for the
protection of investors."[Footnote 90] SEC adopted reporting
requirements for advisers relying on these exemptions in a separate
rulemaking.
The Dodd-Frank Act also provides an exemption for foreign private
advisers, which are defined in the Advisers Act as investment advisers
that, among other things, have no place of business in the United
States, have fewer than 15 clients in the United States and investors
in the United States in private funds advised by the adviser, and have
less than $25 million in aggregate assets under management from such
clients and investors.
SEC adopted three rules to address the exemptions. The first rule
implements the venture capital exemption by defining a venture capital
fund generally as a private fund that: (1) holds no more than 20
percent of the fund's capital commitments in non-qualifying investments
(other than short-term holdings);[Footnote 91] (2) with limited
exceptions does not borrow or otherwise incur leverage except on a
short-term basis; (3) generally does not offer its investors redemption
or other similar liquidity rights; (4) represents itself as pursuing a
venture capital strategy to investors; and (5) is not registered under
the Investment Company Act. Pre-existing funds can also rely on the
grandfathering provision if they represent themselves as pursuing a
venture capital strategy and have issued all fund interests by July 21,
2011.
The second rule provides the exemption for advisers that solely advise
private funds and have assets under management in the United States of
less than $150 million. Under the rule, this exemption applies to U.S.
advisers with less than $150 million in total assets under management
in "private funds," so long as all of the adviser's clients, U.S. or
non-U.S., are private funds. An adviser with a place of business
outside of the U.S. will qualify for the exemption if all of its U.S.
clients are private funds, and the assets the adviser manages at any
U.S. place of business are solely private fund assets with a total
value of less that $150 million. Both U.S. and non-U.S. advisers must
calculate the value of their assets under management according to
instructions in Form ADV, as revised in a separate rulemaking.
Finally, the third rule implements the foreign private adviser
exemption by defining terms used in the new statutory exemption and
otherwise clarifying its operation.
Key Aspects of Regulatory Analyses:
* Identified problem to be addressed by regulation: Adopting rules to
implement the three new exemptions from registration under the Advisers
Act. Providing rules, definitions, and clarifications for new
exemptions enacted under the Dodd-Frank Act.
* Consideration of alternatives reflecting the range of statutory
discretion:
- Definition of Venture Capital Fund:
-- BSEC's definition of venture capital fund was designed to
distinguish venture capital funds from other types of private funds,
such as hedge funds, private equity funds, and to address concerns
expressed by Congress regarding the potential for system risk. SEC did
not define a venture capital fund by reference to investments in small
businesses or companies or by reference to the California definition of
"venture capital fund," as some commenters suggested, but did adopt an
approach suggested by several other commenters that defines a venture
capital fund to include a fund that invests a portion of its capital
commitments in investments that would not otherwise meet the
requirements of the rule. SEC capped the amount of nonconforming
investments at 20 percent of the fund's capital commitments, after
considering this and other amounts suggested by commenters. This change
from the proposal provides venture capital funds greater investment
flexibility.
-- SEC defined a venture capital fund as a private fund that generally
holds equity securities of qualifying portfolio companies that are
directly acquired by the private fund. SEC also allowed acquisition of
equity securities that are (i) issued in exchange for directly acquired
equity securities or (ii) issued by companies that own or merge with
qualifying portfolio companies.
-- SEC considered the definition of qualifying portfolio company,
leverage limitations applicable to venture capital funds, and whether
venture capital funds can issue securities that provide investors with
withdrawal or redemption rights.
-- SEC considered comments concerning the scope of permissible short-
term holdings and ultimately determined to include money market fund
shares in this category.
-- SEC considered comments and ultimately determined not to adopt a
proposed managerial assistance requirement.
-- SEC considered comments and determined that a venture capital fund
must represent that it pursues a venture capital strategy, but need not
necessarily call itself a "venture capital fund."
-- SEC grandfathered advisers to existing private funds that do not
meet all of the requirements but represented to investors at the time
the fund issued its shares that it pursed a venture capital strategy,
among other requirements.
- Exemption for Investment Advisers Solely to Private Funds with Less
Than $150 Million in Assets under Management:
-- The Dodd-Frank Act specifies that SEC is to exempt from registration
under the Advisers Act any investment adviser solely to private funds
having less than $150 million in assets under management in the United
States. SEC determined that an adviser based in the United States must
aggregate the value of all assets of private funds it manages to
determine if the adviser is below the $150 million threshold.
-- SEC determined to require advisers to calculate their private fund
assets using a new method for calculating regulatory assets under
management that was adopted in a separate rulemaking. This method
requires advisers to use fair value but does not specify a particular
fair value standard to mitigate costs associated with the requirement.
-- SEC originally proposed to require advisers relying on the exemption
to calculate their private fund assets each quarter to determine if
they remain eligible. Commenters persuaded SEC that requiring advisers
to calculate private fund assets annually would be more appropriate
because it would result in the same number of advisers becoming
registered each year while reducing costs.
-- If a non-U.S. adviser relying on the exemption has a place of
business in the United States, all of the clients whose assets are
managed at that place of business must be private funds and the assets
must have a total value of less than $150 million. A non-U.S. adviser
may not rely on the exemption if it has any client that is a U.S.
person other than a private fund. SEC incorporated the definition of a
U.S. person in Regulation S under the Securities Act.
-- Whether a non-U.S. adviser has a place of business in the United
States depends on the facts and circumstances. Whether the exemption is
available, however, frequently will turn on whether the non-U.S.
adviser manages assets at a U.S. place of business, rather than whether
an adviser has such an office in the first instance.
-- SEC defined the term "qualifying private fund" to permit advisers to
rely on the exemption if their funds qualified for an Investment
Company Act exclusion in addition to those provided by section 3(c)(1)
or 3(c)(7) of that act.
- Foreign Private Advisers:
-- SEC defined certain terms for use by advisers seeking to avail
themselves of the foreign private adviser exemption, including
"investor," "in the United States," "place of business," and "assets
under management." SEC generally defined these terms by reference to
existing definitions and concepts that should be familiar to non-U.S.
advisers.
* PRA: The rules do not contain a collection of information requirement
and thus no PRA analysis was required.
* RFA: SEC certified in the proposing release that the regulation would
not have a significant impact on a substantial number of small
entities. SEC requested written comment regarding the certification,
but no commenter responded to the request.
* Benefit-cost analysis:
- SEC noted that as a result of the Dodd-Frank Act's repeal of the
private adviser exemption advisers that previously were able to rely on
that exemption will have to register under the Advisers Act unless they
are eligible for an exemption. SEC further notes that the benefits and
costs associated with registration for advisers that are not eligible
for an exemption are attributable to the Dodd-Frank Act. Similarly, the
benefits and costs of being an exempt reporting adviser, relative to
being a registered adviser or an exempt adviser, are specifically
attributable to the Dodd-Frank Act. SEC discusses the benefits and
costs of its rules to implement the three exemptions under the Advisers
Act.
Table:
Definition of Venture Capital Fund: Benefits: Modifications to final
rule better describe the existing venture capital industry;
Benefits or costs monetized?: No;
Estimated impacts: N/A;
Reasons cited for not monetizing benefits or costs: None;
Qualitative description of the benefits or costs?: Yes.
Definition of Venture Capital Fund: Benefits: Greater flexibility to
the venture capital industry to accommodate current and future business
practices and investment opportunities;
Benefits or costs monetized?: No;
Estimated impacts: N/A;
Reasons cited for not monetizing benefits or costs: None;
Qualitative description of the benefits or costs?: Yes.
Definition of Venture Capital Fund: Benefits: Definition of Venture
Capital Fund: Benefits: Criteria under final venture capital rule
facilitate transition to new exemption by minimizing the need to alter
existing business practices;
Benefits or costs monetized?: No;
Estimated impacts: N/A;
Reasons cited for not monetizing benefits or costs: None;
Qualitative description of the benefits or costs?: Yes.
Definition of Venture Capital Fund: Benefits: Allowing qualifying funds
limited investments in non-qualifying investments could facilitate
access to capital and flexibility to structure investments;
Benefits or costs monetized?: No;
Estimated impacts: N/A;
Reasons cited for not monetizing benefits or costs: None;
Qualitative description of the benefits or costs?: Yes.
Definition of Venture Capital Fund: Benefits: Final rule definition
permitting non-qualifying investments has several benefits, including
predictability, ease of compliance;
Benefits or costs monetized?: No;
Estimated impacts: N/A;
Reasons cited for not monetizing benefits or costs: None;
Qualitative description of the benefits or costs?: Yes.
Definition of Venture Capital Fund: Benefits: Definition of qualifying
investment allows venture capital funds to participate in
reorganization of capital structure of portfolio company, provides
opportunity to take profits from investments;
Benefits or costs monetized?: No;
Estimated impacts: N/A;
Reasons cited for not monetizing benefits or costs: None;
Qualitative description of the benefits or costs?: Yes.
Definition of Venture Capital Fund: Benefits: Final rule provision that
allows a venture capital fund adviser to treat as a private fund a non-
U.S. fund managed by the adviser facilitates capital formation and
competition;
Benefits or costs monetized?: No;
Estimated impacts: N/A;
Reasons cited for not monetizing benefits or costs: None;
Qualitative description of the benefits or costs?: Yes.
Definition of Venture Capital Fund: Benefits: Exclusion of guarantees
of portfolio company indebtedness from the 120-day limit facilitates
portfolio company ability to obtain credit;
Benefits or costs monetized?: No;
Estimated impacts: N/A;
Reasons cited for not monetizing benefits or costs: None;
Qualitative description of the benefits or costs?: Yes.
Definition of Venture Capital Fund: Benefits: Restricts a portfolio
company's ability to incur debt that may implicate Congressional
concerns regarding the use of leverage and distinguishes exempt venture
capital funds from non-exempt leveraged buyout equity funds;
Benefits or costs monetized?: No;
Estimated impacts: N/A;
Reasons cited for not monetizing benefits or costs: None;
Qualitative description of the benefits or costs?: Yes.
Definition of Venture Capital Fund: Benefits: Final rule contains
several characteristics that provide additional flexibility to venture
capital advisers and their funds, including grandfathering provision;
Benefits or costs monetized?: No;
Estimated impacts: N/A;
Reasons cited for not monetizing benefits or costs: None;
Qualitative description of the benefits or costs?: Yes.
Definition of Venture Capital Fund: Benefits: To the extent that
additional advisers are required to register this may facilitate SEC's
mandate to protect investors and benefits investing public;
Benefits or costs monetized?: No;
Estimated impacts: N/A;
Reasons cited for not monetizing benefits or costs: None;
Qualitative description of the benefits or costs?: Yes.
Definition of Venture Capital Fund: Costs: Confirmation of
grandfathered status;
Benefits or costs monetized?: Yes;
Estimated impacts: $800 per adviser x 791 advisers;
Reasons cited for not monetizing benefits or costs: N/A;
Qualitative description of the benefits or costs?: Yes.
Definition of Venture Capital Fund: Costs: Cost of registration with
SEC if exemption unavailable;
Benefits or costs monetized?: Yes;
Estimated impacts: $15,077 to $20,077 per adviser;
Reasons cited for not monetizing benefits or costs: N/A;
Qualitative description of the benefits or costs?: Yes.
Definition of Venture Capital Fund: Costs: New registrant establishing
compliance infrastructure (one-time cost) if required to register with
SEC;
Benefits or costs monetized?: Yes;
Estimated impacts: $10,000 to $45,000 per adviser;
Reasons cited for not monetizing benefits or costs: N/A;
Qualitative description of the benefits or costs?: Yes.
Definition of Venture Capital Fund: Costs: Annual ongoing compliance
costs if required to register with SEC;
Benefits or costs monetized?: Yes;
Estimated impacts: $10,000 to $50,000 per adviser;
Reasons cited for not monetizing benefits or costs: N/A;
Qualitative description of the benefits or costs?: Yes.
Definition of Venture Capital Fund: Costs: Costs to determine how to
structure new funds and meet elements of SEC definition;
Benefits or costs monetized?: Yes;
Estimated impacts: $64,400 to $110,400 industrywide among affected
advisers;
Reasons cited for not monetizing benefits or costs: N/A;
Qualitative description of the benefits or costs?: Yes.
Definition of Venture Capital Fund: Costs: Adviser choice to structure
funds to comply with definitions or not to form new funds could result
in less competition and capital formation;
Benefits or costs monetized?: No;
Estimated impacts: N/A;
Reasons cited for not monetizing benefits or costs: None;
Qualitative description of the benefits or costs?: Yes.
Exemption for Investment Advisers Solely to Private Funds with Less
than $150 Million in Assets under Management in the United States:
Benefits: Permitting advisers to calculate their private fund assets
annually, rather than quarterly, and to use the method of calculation
required for regulatory purposes generally, reduces burdens on
advisers. Annual calculations, together with separate amendments to
Form ADV, also provide a transition period for certain advisers that
are no longer eligible for the exemption;
Benefits or costs monetized?: No;
Estimated impacts: N/A;
Reasons cited for not monetizing benefits or costs: None;
Qualitative description of the benefits or costs?: Yes.
Exemption for Investment Advisers Solely to Private Funds with Less
than $150 Million in Assets under Management in the United States:
Benefits: Interpretation of "Assets under Management in the United
States" will provide flexibility and reduce compliance costs;
Benefits or costs monetized?: No;
Estimated impacts: N/A;
Reasons cited for not monetizing benefits or costs: None;
Qualitative description of the benefits or costs?: Yes.
Exemption for Investment Advisers Solely to Private Funds with Less
than $150 Million in Assets under Management in the United States:
Benefits: If interpretation of Assets under Management in the United
States increases the number of advisers subject to registration, will
benefit investors, and enhance investor protection;
Benefits or costs monetized?: No;
Estimated impacts: N/A;
Reasons cited for not monetizing benefits or costs: None;
Qualitative description of the benefits or costs?: Yes.
Exemption for Investment Advisers Solely to Private Funds with Less
than $150 Million in Assets under Management in the United States:
Benefits: Interpretation that non-U.S. adviser may be exempt even if it
advises non-U.S. clients that are not private funds will increase the
number of non-U.S. advisers eligible for exemption and will encourage
participation of non-U.S. advisers in the U.S. market;
Benefits or costs monetized?: No;
Estimated impacts: N/A;
Reasons cited for not monetizing benefits or costs: None;
Qualitative description of the benefits or costs?: Yes.
Exemption for Investment Advisers Solely to Private Funds with Less
than $150 Million in Assets under Management in the United States:
Benefits: Definition of "United States person" based generally on
Regulation S provides a well-developed body of law that appropriately
addresses many of the questions that will arise under the new
exemption;
Benefits or costs monetized?: No;
Estimated impacts: N/A;
Reasons cited for not monetizing benefits or costs: None;
Qualitative description of the benefits or costs?: Yes.
Exemption for Investment Advisers Solely to Private Funds with Less
than $150 Million in Assets under Management in the United States:
Benefits: Definition of "qualifying private fund" permits advisers to
additional types of funds to rely on the exemption;
Benefits or costs monetized?: No;
Estimated impacts: N/A;
Reasons cited for not monetizing benefits or costs: None;
Qualitative description of the benefits or costs?: Yes.
Exemption for Investment Advisers Solely to Private Funds with Less
than $150 Million in Assets under Management in the United States:
Costs: Non-U.S. adviser internal review cost to determine whether they
have assets under management in U.S;
Benefits or costs monetized?: Yes;
Estimated impacts: $6,730 per adviser;
Reasons cited for not monetizing benefits or costs: N/A;
Qualitative description of the benefits or costs?: Yes.
Exemption for Investment Advisers Solely to Private Funds with Less
than $150 Million in Assets under Management in the United States:
Costs: Costs to determine whether the exemption is available;
Benefits or costs monetized?: Yes;
Estimated impacts: $800 to $4,800 per adviser;
Reasons cited for not monetizing benefits or costs: N/A;
Qualitative description of the benefits or costs?: Yes.
Exemption for Investment Advisers Solely to Private Funds with Less
than $150 Million in Assets under Management in the United States:
Costs: Conforming internal valuation standard to fair value standard;
Benefits or costs monetized?: Yes;
Estimated impacts: $1,320 per adviser;
Reasons cited for not monetizing benefits or costs: N/A;
Qualitative description of the benefits or costs?: Yes.
Exemption for Investment Advisers Solely to Private Funds with Less
than $150 Million in Assets under Management in the United States:
Costs: Purchasing pricing or valuation services from third party to
comply with fair value standard if unable to conform internal valuation
standards;
Benefits or costs monetized?: Yes;
Estimated impacts: $250 to $75,000 per adviser;
Reasons cited for not monetizing benefits or costs: N/A;
Qualitative description of the benefits or costs?: Yes.
Exemption for Investment Advisers Solely to Private Funds with Less
than $150 Million in Assets under Management in the United States:
Costs: Cost of registration with SEC if exemption unavailable;
Benefits or costs monetized?: Yes;
Estimated impacts: $15,077 to $20,077 per adviser;
Reasons cited for not monetizing benefits or costs: N/A;
Qualitative description of the benefits or costs?: Yes.
Exemption for Investment Advisers Solely to Private Funds with Less
than $150 Million in Assets under Management in the United States:
Costs: New registrant establishing compliance infrastructure (one-time
cost) if required to register with SEC;
Benefits or costs monetized?: Yes;
Estimated impacts: $10,000 to $45,000 per adviser;
Reasons cited for not monetizing benefits or costs: N/A;
Qualitative description of the benefits or costs?: Yes.
Exemption for Investment Advisers Solely to Private Funds with Less
than $150 Million in Assets under Management in the United States:
Costs: Annual ongoing compliance costs if required to register with
SEC;
Benefits or costs monetized?: Yes;
Estimated impacts: $10,000 to $50,000 per adviser;
Reasons cited for not monetizing benefits or costs: N/A;
Qualitative description of the benefits or costs?: Yes.
Exemption for Investment Advisers Solely to Private Funds with Less
than $150 Million in Assets under Management in the United States:
Costs: Foreign Private Adviser Exemption;
Foreign Private Adviser Exemption: Benefits: Definition of terms
included in the statutory definition of "foreign private adviser" by
reference to definitions in other SEC rules limits non-U.S. advisers'
need to undertake additional analysis for the purpose of determining
availability of the exemption;
Benefits or costs monetized?: No;
Estimated impacts: N/A;
Reasons cited for not monetizing benefits or costs: None;
Qualitative description of the benefits or costs?: Yes.
Foreign Private Adviser Exemption: Benefits: Modification of existing
definitions of certain terms will have the effect of narrowing the
scope of the exemption and increase registration which will benefit
investors;
Benefits or costs monetized?: No;
Estimated impacts: N/A;
Reasons cited for not monetizing benefits or costs: None;
Qualitative description of the benefits or costs?: Yes.
Foreign Private Adviser Exemption: Costs: Non-U.S. adviser cost to
determine whether eligible for exemption;
Benefits or costs monetized?: Yes;
Estimated impacts: $6,730 per adviser;
Reasons cited for not monetizing benefits or costs: N/A;
Qualitative description of the benefits or costs?: Yes.
Foreign Private Adviser Exemption: Costs: Cost of registration if
exemption unavailable;
Benefits or costs monetized?: Yes;
Estimated impacts: $15,077 per adviser;
Reasons cited for not monetizing benefits or costs: N/A;
Qualitative description of the benefits or costs?: Yes.
Foreign Private Adviser Exemption: Costs: New registrant establishing
compliance infrastructure (one-time cost) if required to register with
SEC;
Benefits or costs monetized?: Yes;
Estimated impacts: $10,000 to $45,000 per adviser;
Reasons cited for not monetizing benefits or costs: N/A;
Qualitative description of the benefits or costs?: Yes.
Foreign Private Adviser Exemption: Costs: Annual ongoing compliance
costs if required to register with SEC;
Benefits or costs monetized?: Yes;
Estimated impacts: $10,000 to $50,000 per adviser;
Reasons cited for not monetizing benefits or costs: N/A;
Qualitative description of the benefits or costs?: Yes.
N/A = not applicable.
Source: GAO.
[End of table]
Public comments[Footnote 92]
* Number of days to comment: 66:
* Number of comments received: 117:
* Comments regarding regulatory analysis:
- SEC's compliance infrastructure and annual compliance cost estimates
were too low. SEC acknowledged that the costs of compliance for new
registrants can vary widely depending on their size, activities, and
the sophistication of their existing infrastructure.
- SEC did not receive any other comments concerning its specific cost
estimates.
Identifying Information:
* Agency: SEC:
* Date of proposed rule: November 19, 2010:
* Date of final rule: July 6, 2011:
* Effective date: July 21, 2011:
* Federal Register citation: 76 Fed. Reg. 39646:
[End of section]
Appendix V: Comments from the Commodity Futures Trading Commission:
U.S. Commodity Futures Trading Commission:
Three Lafayette Centre:
1155 21st Street, NW:
Washington, DC 20581:
[hyperlink, http://www.cftc.gov]:
Gary Gensler:
Chairman:
(202) 418-5050:
October 25, 2011:
A. Nicole Clowers:
Director:
Financial Markets and Community Investment United States:
Government Accountability Office Washington, DC 20548:
Dear Ms. Clowers:
Thank you for the opportunity to review the findings, conclusions, and
recommendations of the Government Accountability Office report titled
"Dodd-Frank Act Regulations: Implementation Could Benefit from
Additional Analyses and Coordination,” GAO-12-151. The Commodity
Futures Trading Commission (CFTC) is working deliberately, efficiently,
and transparently to implement the Dodd-Frank Act.
The CFTC conducts cost-benefit considerations in its rulemakings as
prescribed by Congress in Section 15(a) of the Commodity Exchange Act.
The statute includes particularized factors to inform cost-benefit
considerations that arc specific to the markets regulated by the CFTC.
The CFTC's practices are consistent with the principles of the
executive order issued by the President on January 18, 2011. The CFTC
has a robust process to involve and ensure public participation in the
rulemaking process, and consults broadly with other regulators to
coordinate, harmonize and simplify regulations.
The agency's General Counsel and Chief Economist have provided detailed
written guidance to all staff involved in the Dodd-Frank Act rulemaking
process. Under that guidance, the Office of the Chief Economist assigns
a staff person for each rulemaking team to provide quantitative and
qualitative input on costs and benefits of the final rulemaking. The
written guidance references OMB Circular A-4 and incorporates the
principles of Executive Order 13563 to the extent possible consistent
with the underlying statutory mandate. The CFTC's Dodd-Frank staff
rulemaking teams and the Commissioners are all working closely with the
SEC and all fellow regulators. CFTC staff have held more than 600
meetings with their counterparts at other agencies and have hosted
numerous public roundtables with staff from other regulators to benefit
from the open exchange of ideas. Commission staff will continue to
engage with colleagues at the SEC and other agencies as during the
development and consideration of final rules and ensure harmonization
among agencies.
In the Federal Register on Thursday, June 30, 2011, the CFTC announced
that, in accordance with Executive Order 13563, it will review existing
regulations to evaluate their continued effectiveness in achieving the
objectives for which they were adopted. Again, thank you for the
opportunity to comment regarding the draft report.
Sincerely,
Signed by:
Gary Gensler:
Chairman:
[End of section]
Appendix VI: Comments from the Consumer Financial Protection Bureau:
CFPB:
Consumer Finance Protection Bureau:
1500 Pennsylvania Ave NW:
(Attn: 1801 L Street):
Washington, DC 20220:
[hyperlink, http://www.consumerfinance.gov]:
October 24, 2011:
A. Nicole Clowers:
Director, Financial Markets and Community Investments:
U.S. Government Accountability Office:
441 G Street, N.W.:
Washington, D.C. 20548:
Dear Ms. Clowers:
Thank you for the opportunity to comment on the GAO draft report
entitled Dodd-Frank Act Regulations: Implementation Could Benefit from
Additional Analyses and Coordination. The Consumer Financial Protection
Bureau ("CFPB" or "Bureau") welcomes this report as a valuable study of
the important roles regulatory analysis and interagency coordination
are playing in the development and implementation of the Dodd-Frank
Act's reforms. The report documents the challenges and complexity
involved in reliably estimating the costs and benefits of regulations
to consumers and the financial services industry.
As an agency committed to evidence-based rulemaking, the CFPB
recognizes the importance of carefully considering benefits, costs, and
impacts throughout the rulemaking process. To that end, we are hiring
PhD economists, financial analysts, and industry experts to help the
CFPB thoroughly consider these factors and identify and address
unwarranted regulatory burden whenever possible. As a new Federal
agency, we expect to follow the spirit of the OMB's guidance on
preparing regulatory analyses in a manner consistent with the Dodd-
Frank Act, which speaks directly to the consideration of benefits,
costs, and impacts. We are also considering the lessons learned from
our initial consultations with other agencies and engaging in further
dialogue with those agencies as we develop written consultation and
coordination guidelines. Finally, we are working to seek public input
on performing retrospective analyses of significant regulations over
time.
We appreciate the GAO's work on these issues, which we view as central
to the CFPB's mission and operations. We look forward to working with
you on these matters.
Sincerely,
Signed by:
Dan Sokolov
Deputy Associate Director:
Research, Markets and Regulations:
[End of section]
Appendix VII: Comments from the Federal Deposit Insurance Corporation:
FDIC:
Federal Deposit Insurance Corporation:
General Counsel:
550 17th Street NW, Washington, D.C. 20429-9990:
October 27, 2011:
Ms. A. Nicole Clowers:
Director, Financial Markets and Community Investment:
U.S. Government Accountability Office:
441 G Street, N.W.:
Washington, D.C. 20548:
Dear Ms. Clowers:
Thank you for the opportunity to review and comment on the Government
Accountability Office's draft report titled, Dodd-Frank Act
Regulations: Implementation Could Benefit From Additional Analyses and
Coordination (GAO-12-151) (hereinafter, the "Report"). The Report
summarizes GAO's study of certain regulations promulgated under the
Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank
Act") by federal financial regulatory agencies, including the FDIC, and
makes four recommendations with respect to the agencies' rulemaking
processes. We appreciate your review and recommendations. As described
further below, we plan to review the FDIC's formal policy statement and
regulatory processes to evaluate where we can make improvements in
light of GAO's recommendations.
The FDIC's response to each of the Report's recommendations follows. In
addition, FDIC staff is separately providing to your staff a few
technical comments on the Report.
GAO Recommendation: To strengthen the rigor and transparency of their
regulatory analyses, GAO recommends that the federal financial
regulators take steps to better ensure that the specific practices in
OMB's regulatory analysis guidance are more fully incorporated into
their rulemaking policies and consistently applied.
FDIC Response: The FDIC believes cost-benefit analysis to be an
important component of the rule-making process and seeks to undertake
such analysis with rigor and transparency. As noted in the Report, in
1998 the FDIC adopted its Statement of Policy on the Development and
Review of FDIC Regulation and Policies ("Policy Statement") which
establishes basic principles that guide the FDIC's development and
review of rulemaking. As stated in our Policy Statement, the FDIC "is
committed to improving the quality of its regulations and policies, to
minimizing regulatory burdens on the public and the banking industry,
and generally to ensuring that its regulations and policies achieve
legislative goals effectively and efficiently."[Footnote 94]
The Report notes that the FDIC and other federal financial regulatory
agencies are not subject to Executive Orders ("E.0.") 12866 or 13563,
or to OMB Circular A-4 (which provides guidance to covered agencies on
regulatory analysis and the way benefits and costs of regulatory
actions should be measured and reported). Further, in its review of
certain Dodd-Frank Act regulations, GAO found that each of the
financial regulatory agencies' rulemaking policies provided guidance
consistent with the various statutory requirements applicable to the
agencies.[Footnote 95] The GAO Report recommends, however, that the
federal financial regulators take steps to better ensure that specific
practices in OMB regulatory analysis guidance are more fully
incorporated in their rulemaking policies and consistently applied. In
this regard, the Report focuses on guidance in OMB Circular A-4, and,
in particular, those parts of A-4 regarding monetizing or quantifying
costs and benefits as pan of a rulemaking, identification of the type
and timing of those benefits or costs, expression of the benefits or
costs in constant dollars, or an explanation of why these types of cost-
benefit analyses cannot be done.
We note that the FDIC faces certain challenges in conducting cost-
benefit analyses of its rules. Applicable statutes often limit the
FDIC's flexibility and may constrain consideration of alternative
approaches. In certain situations, additional cost-benefit analysis may
require the FDIC (or other agencies) to seek additional, sometimes
proprietary financial data from our regulated institutions, which may
increase regulatory burden and delay implementation of statutory
requirements. In addition, as the Report states, the difficulty of
reliably estimating costs of regulations to the financial services
industry and the nation has long been recognized and the benefits of
regulation generally are regarded as even more difficult to
measure.[Footnote 96]
In consideration of the Report's recommendation on regulatory analysis
and to ensure that we continue to accomplish our regulatory mandates
and objectives in the most effective manner possible, the FDIC will
review OMB Circular A-4 and revisit its Policy Statement to evaluate
how the Policy Statement should be revised to incorporate additional
cost-benefit analysis along the lines described in the Report.
GAO Recommendation: To enhance interagency coordination on regulations
issued pursuant to Dodd-Frank, GAO recommends that FSOC work with the
federal financial regulatory agencies to establish formal coordination
policies that clarify issues such as when coordination should occur,
the process that will be used to solicit and address comments, and what
role FSOC should play in facilitating coordination.
FDIC Response: The Report states that GAO reviewed certain final rules
under the Dodd-Frank Act to assess interagency coordination; In the
Report, GAO explains that none of the rules selected were joint
rulemakings (in which GAO says coordination is implicit) nor were they
rules for which the Dodd-Frank Act specifically requires interagency
coordination.[Footnote 97]
Based on its own findings about the limitations of the written policies
of the various federal financial agencies with respect to interagency
coordination on rulemaking, and on industry and academic suggestions,
the GAO Report recommends that FSOC work with the agencies to establish
formal coordination policies and clarify the coordination process,
including what role FSOC should play.
The FDIC agrees that additional interagency coordination for Dodd-Frank
Act rulemakings may be appropriate and useful even when coordination is
not statutorily required. The FDIC looks forward to working with the
FSOC member agencies to explore additional steps that may be taken
consistent with this recommendation.
GAO Recommendation: To maximize the usefulness of the required
retrospective reviews, we recommend that the federal financial
regulatory agencies develop plans that determine how they will measure
the impact of Dodd-Frank Act regulations—for example, determining how
and when to collect, analyze, and report needed data.
FDIC Response: The Report points out that the federal financial
regulators are required to conduct retroactive reviews of their
existing rules under various statutes, which will include Dodd-Frank
Act rules in their future reviews. In particular, the Report discusses
the Economic Growth and Regulatory Paperwork Reduction Act of 1996
(EGRPRA), which requires the FDIC and other Federal Financial
Institutions Examination Council member agencies to review their rules
at least every ten years to identify outdated, unnecessary or unduly
burdensome regulatory requirements. The next EGRPRA review must be
completed by 2016. This EGRPRA review will require the FDIC to evaluate
the impact of Dodd-Frank Act rules, which are as yet at an early stage,
as noted to GAO by the regulatory agencies and industry
representatives. In the Report, GAO finds that although federal
financial regulators indicated they plan to conduct retrospective
reviews of their Dodd-Frank Act rules, most have not developed a plan
for such reviews.
In connection with the upcoming EGPRA review, the FDIC will develop a
plan for how to measure the impact of Dodd-Frank Act regulations that
we implement, including how and when to collect, analyze, and report
needed data.
GAO Recommendation: To effectively carry out its statutory
responsibilities, we recommend that FSOC direct the Office of Financial
Research ["OFR'] to work with its members to identify and collect the
data necessary to assess the impact of the Dodd-Frank Act regulations
on, among other things, the stability, efficiency, and competitiveness
of the U.S. financial markets.
FDIC Response: This recommendation is directed at FSOC, and at the OFR,
which the Dodd-Frank Act established within the Treasury Department.
The FDIC looks forward to working with FSOC and OFR as appropriate in
any steps taken to identify data needed to assess the impact of Dodd-
Frank Act regulations. Thank you again for the opportunity to comment
on this GAO Report. As discussed above, the FDIC remains committed to
appropriate benefit-cost analysis and interagency coordination in its
rulemakings, including those pursuant to the Dodd-Frank Act. If you
have any questions or comments concerning this response to the Report,
please contact me at (202) 898-8950 or Deputy General Counsel Roberta
K. McInerney at (202) 898-3830.
Sincerely,
Signed by:
Michael H. Krumminger:
General Counsel:
[End of section]
Appendix VIII: Comments from the Board of Governors of the Federal
Reserve System:
Board Of Governors:
Federal Reserve System:
Washington, D.C. 20551:
October 24, 2011:
Ms. A. Nicole Clowers:
Director, Financial Markets and Community Investment:
Government Accountability Office:
441 G Street, N.W.:
Washington, D.C. 20548:
Dear Ms. Clowers:
Thank you for the opportunity to comment on your draft report GAO-12-
151 regarding Dodd-Frank regulations. As the draft report notes,
federal financial regulatory agencies comply with a variety of
rulemaking requirements such as the Paperwork Reduction Act and the
Regulatory Flexibility Act, and seek to follow the spirit of federal
benefit-cost requirements within the context of the unique nature of
financial regulatory supervision, though this is not a mandate. Federal
financial regulation, above all else, is focused on the safety and
soundness of specific financial institutions[Footnote 98] and
therefore, as the report notes, conducting benefit-cost analysis on
financial regulations is inherently difficult, and, "the difficulty of
reliably estimating the costs of regulations to the financial services
industry and the nation has long been recognized, and the benefits of
regulation generally are regarded as even more difficult to
measure".[Footnote 99]
The draft report recognizes that federal financial regulators seek to
abide by the spirit of OMB benefit-cost guidance. In fact, existing
Federal Reserve regulatory policies[Footnote 100] closely mirror key
aspects of Executive Order 13563, issued on January 18, 2011 related to
improving regulation and regulatory review. The report further
recognizes that the federal financial regulators voluntarily consult
with each other about proposed rules to avoid duplication or overlap,
even when not required to by law. The report also notes that many of
the rules reviewed for this study were set forth by Congress with very
little discretion left to the agencies.
The draft report includes two recommendations to the Federal Reserve
and other federal financial regulators. The first recommendation is
that regulators take steps to ensure that OMB regulatory analysis is
more fully incorporated in rulemaking policies. As summarized in the
highlights section, "to the extent that the regulators strive to follow
OMB's guidance, they should take steps to more fully incorporate the
guidance" into the rulemaking policies they follow. The second
recommendation is that federal regulators plan for ways to measure the
impact of Dodd-Frank regulations when sufficient time has passed to
allow for such evaluations. As the highlights page summarizes this
recommendation, "to maximize the usefulness of these reviews, GAO
recommends that the regulators identify what data will be needed to
retrospectively assess the impact of the rules in the future."
The Federal Reserve will consider appropriate ways to incorporate these
recommendations into its rulemaking procedures within the constraints
of the specific challenges related to federal financial rulemakings
noted by the GAO. The Federal Reserve appreciates the efforts the GAO
has taken in this report and for the opportunity to make these
comments.
Sincerely,
Signed by:
Scott G. Alvarez:
General Counsel:
Signed by:
James M. Lyon:
Senior Advisor to the Board for Regulatory Reform Implementation:
[End of section]
Appendix IX: Comments from the Financial Stability Oversight Council:
Department Of The Treasury:
Washington, D.C. 20220:
October 28, 2010:
A. Nicole Clowers, Director:
Financial Markets and Community Investment:
U.S. Government Accountability Office:
441 G Street, NW:
Washington, DC 20548:
Dear Ms. Clowers:
I am writing in response to your draft report entitled Dodd-Frank Act
Regulations, Implementation Could Benefit from Additional Analyses and
Coordination (the "Draft Report"). We appreciate the opportunity to
review and comment on the Draft Report.
The Draft Report contains several recommendations regarding how the
Financial Stability Oversight Council ("Council") can further improve
interagency communication and coordination, and prepare to assess the
impact of Dodd-Frank Act rulemakings. While our financial regulatory
system is built on the independence of regulators, and those regulators
may have different views on complicated issues, successful
implementation of the Dodd-Frank Act rulemakings will require agencies
to work together even if coordination is not statutorily required. One
of the duties of the Council is to facilitate coordination on
rulemakings although the Dodd-Frank Act does not provide a mechanism
for requiring coordination among independent agencies. The Council is
already providing a forum for interagency collaboration and
consultation, while preserving the independence of the regulators. In
October of 2010, the Council released a road map for implementation of
the Dodd-Frank Act. Since then, the Council has worked to facilitate
and to improve dialogue among the member agencies on a broad range of
topics, including major rulemakings, the collection of useful financial
data in conjunction with the Office of Financial Research, and other
aspects of the statute. Most importantly, the members of the Council
coordinate extensively in their efforts to monitor the financial
services marketplace to identify potential threats to the financial
stability of the United States. As the Draft Report acknowledges, this
has occurred through formal Council meetings, meeting of Council
committees, and other discussions. In this manner, the Council has
helped to foster shared accountability for the strength of our
financial system.
We agree that continuing to improve coordination is critical. The
Council's first annual report, including the unanimous recommendations
of the member agencies, reflects the high level of coordination within
the Council. In fact, members of the Council highlighted the importance
of continued domestic and international coordination as a key
recommendation in that report. We will carefully consider the GAO's
recommendations in the Draft Report as we continue to improve our
protocols.
Thank you for the opportunity to review and comment on the Draft
Report. We look forward to working with you and your team in the
future.
Sincerely,
Signed by:
Amias Gerety:
Deputy Assistant Secretary:
Office of Financial Stability Oversight Council:
[End of section]
Appendix X: Comments from the Office of the Comptroller of the
Currency:
Comptroller of the Currency:
Administrator of National Banks:
Washington, DC 20219:
October 24, 2011:
Ms. A. Nicole Clowers:
Director, Financial Markets and Community Investment:
United States Government Accountability Office:
Washington, DC 20548:
Dear Ms. Clovers:
Thank you for the opportunity to review the draft report titled "Dodd-
Frank Act Regulations: Implementation Could Benefit from Additional
Analyses and Coordination." Your report responds to an amendment to the
Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank
Act) that directs the Government Accountability Office (GAO) to analyze
(1) the impact of regulations on the financial marketplace; (2) efforts
to avoid duplicative or conflicting rulemakings, information requests,
and examinations; and (3) other related matters that GAO deems
appropriate. GAO has determined that its current and future analyses
will be limited to the financial regulations promulgated pursuant to
the Dodd-Frank Act, and this draft report focuses exclusively on
regulations that were effective as of July 21, 2011.
The draft report finds that the federal financial regulators are taking
steps to address the challenges associated with promulgating hundreds
of new rifles required under the Dodd-Frank Act and makes four
recommendations aimed at improving the efficiency and effectiveness of
these efforts. This letter provides two comments on those
recommendations.
First, the report recommends that the federal financial regulators take
steps to better ensure that the specific practices in Office of
Management and Budget's (OMB) regulatory analysis guidance are More
fully incorporated into their rulemaking policies and are consistently
applied. Executive Order 12866 establishes the circumstances under
which certain agencies are required to conduct cost-benefit analyses.
0M-13 Circular A-4 prescribes the methodologies that agencies ate to
use to do so. Some of the agencies charged with rulemaking
responsibilities under the Dodd-Frank Act, including the OCC, are not
subject to this Executive Order. Nevertheless, the OCC refers to
Circular A-4 to analyze costs and benefits under the Unfunded Mandates
Reform Act (UMRA) Where the impact of A rule exceeds the threshold
under the UMRA.[Footnote 101] The OCC also currently is in the process
of revising its Guide to OCC Rulemaking Procedures. The revised Guide
will contain procedures developed by the OCC's Policy Analysis Division
that explicitly reference Circular A-4 for conducting economic
analyses. For example, these procedures direct staff to look at
suggestions in Circular A-4 for methods of treating non-monetized
benefits and costs and suggested alternative regulatory approaches. The
revised Guide also will provide more direction to staff on interagency
coordination and consultation practices.
Second, the report recommends that the Financial Stability Oversight
Council (FSOC) work with the financial regulators to establish formal
coordination policies that clarify issues such as when coordination
should occur, the process that will be used to solicit and address
comments, and what role the FSOC should play in facilitating
coordination. As the draft report recognizes (at pp. 21-22), the FSOC
member agencies already have adopted consultation protocols that apply
when member agencies are required by statute to consult one another in
writing regulations implementing the Dodd-Frank Act. Any further
efforts to clarify the FSOC's coordination role will require a careful
balancing of the benefits of coordinated rulemaking while ensuring that
there is no encroachment on the independence of each agency or pursuit
of the separate mission that each is statutorily charged to fulfill.
Other consultation protocols also Will be important. As the report
notes, Title X of the Dodd-Frank Act imposes consultation obligations
upon the Consumer Financial Protection Bureau at two stages of the
rulemaking process. The OCC has recommended consultation protocols for
this process modeled upon the consultation protocols already adopted by
the FSOC.
We appreciate the opportunity to comment on the draft report.
Sincerely,
Signed by:
John Walsh:
Acting Comptroller of the Currency
[End of section]
Appendix XI: Comments from the Securities and Exchange Commission:
United States:
Securities And Exchange Commission:
Washington, D.G. 20549:
October 24, 2011:
A. Nicole Clowers:
Director, Financial Markets and Community Investment:
United States Government Accountability Office:
441 G Street, NW:
Washington, DC 20548:
Dear Ms. Clowers:
Thank you for providing us with the opportunity to review and comment
on GAO's draft report entitled Dodd-Frank Act Regulations:
Implementation Could Benefit from Additional Analyses and Cooperation
(GA0-12-151). We appreciate GAO's work on this important matter and the
courtesy and consideration you have shown to the SEC staff in
conducting this study.
We have transmitted separately a few specific comments on factual
portions of the draft report concerning the SEC that we believe should
be amended for accuracy. Our views on the broader issues and
recommendations discussed in the draft report are described below.
Implementation of the Dodd-Frank Wall Street Reform and Consumer
Protection Act ("Dodd-Frank Act") is a major undertaking for the SEC
and other government regulatory agencies. The Dodd-Frank Act requires
or authorizes federal financial regulatory agencies, including the SEC,
to promulgate hundreds of regulations. Of the more than ninety
mandatory rulemaking provisions that apply to the SEC, the SEC has
proposed or adopted rules for more than three-fourths of them --not
including rules stemming from the dozens of other provisions that give
the SEC discretionary rulemaking authority. Additionally, the SEC has
finalized twelve of the more than twenty studies and reports that it is
required to complete under the Act. We note that of the thirty-two
final rulemakings examined by GAO in its draft report, ten were issued
by the SEC. While we have achieved a great deal, we are continuing to
work diligently to implement all provisions of the Act for which we
have responsibility, even as we continue to perform our longstanding
core responsibilities.
Of the four recommendations contained in the draft report, two are
directed to the regulatory agencies charged with writing rules to
implement the Dodd-Frank Act, including the SEC. First, GAO recommends
that financial regulators take steps to better ensure that the specific
practices in OMB's regulatory analysis guidance are more fully
incorporated into their rulemaking policies and are consistently
applied. I agree that sound regulatory analysis is an important element
of effective rulemaking. We are keenly aware that our rules have both
costs and benefits, and that the steps we take to protect the investing
public impact both financial markets and industry participants who must
comply with our rules. As the GAO draft report acknowledges, however,
and as GAO has reported in the past, reliably estimating the costs of
regulations to the financial services industry and the nation is
extremely difficult, and the benefits of regulation are generally
regarded as even more difficult to measure. An additional challenge
noted in the draft report is that of obtaining the best economic
information available to conduct the regulatory analysis in a timely
manner, particularly given the time constraints imposed by the Dodd-
Frank Act. We created the Division of Risk, Strategy, and Financial
Innovation ("Risk Fin") in September 2009, and one of our primary goals
in doing so was to enhance the agency's economic analysis capabilities
for our rulemaking. I have recently asked the staff to explore ways to
improve the process for integrating economic analysis into the
Commission's decision-making throughout the course of a rulemaking. As
part of that effort, Risk Fin has been considering best practices for
conducting sound economic analysis in rulemaking. Although as an
independent regulatory agency we are not obligated to follow the
guidelines in OMB Circular A-4, we strive to accomplish what GAO's
draft report identifies as the basic elements of a good regulatory
analysis under Circular A-4 by explaining the need for the proposed
action, carefully examining alternative approaches, and evaluating the
costs and benefits of the proposed action and alternatives. As we work
towards possible improvements to our processes for conducting economic
analysis, we will examine whether there are additional elements that
Circular A-4 identifies for achieving these basic objectives that may
be appropriate to incorporate into our process.
Second, the draft report recommends that financial regulators develop
plans that determine how they will measure the impact of Dodd-Frank Act
regulations. As the draft report notes, the SEC has already begun the
process of planning for retrospective analysis of our rules. In
September 2011, we issued a release seeking public comments to assist
the Commission in developing a plan for the retrospective review of
existing significant regulations. The public comment period has
recently closed, and we are now in the process of considering the
comments received as we proceed towards developing a plan.
The GAO draft report also makes two recommendations that are directed
primarily at the Financial Stability Oversight Council ("FSOC"). As
Chairman of the SEC, I am a voting member of FSOC. Senior SEC staff and
I have actively participated in FSOC and found its focus on identifying
and addressing risks to the financial system to be important and
helpful to the SEC as a capital markets regulator. FSOC also has
fostered a healthy and positive sense of collaboration among the
financial regulators, facilitating cooperation and coordination for the
benefit of investors and our overall financial system. In that spirit,
the SEC has closely coordinated with the other regulators on individual
rulemakings.
The draft report recommends that FSOC work with the federal financial
regulatory agencies to establish formal coordination policies. As the
draft report reflects, the agencies developed informal processes to
work together: the agencies' senior leadership identified areas where
it would be useful for regulators to confer, and the regulators
informally consulted and coordinated on a number of rules, even when it
may not have been required. Additionally, as the draft report notes, we
have entered into a Memorandum of Understanding with the CFTC, the
fellow regulator with which we have the greatest number of rulemakings
requiring coordination or joint action. While more formal policies
regarding the process of collaboration might be helpful, these efforts
should of course fully respect the independence of the respective
member agencies regarding the substance of the rules for which they are
responsible and the mission of FSOC itself. FSOC was not designed as a
"super-regulator" but was created to provide a venue and mechanism for
identifying and addressing potentially systemic risks that often flow
across multiple regulatory regimes.
The draft report also recommends that FSOC direct the Office of
Financial Research to work with its members to identify and collect the
data necessary to assess the impact of the Dodd-Frank Act regulations.
We look forward to working more closely with the Office of Financial
Research to obtain more data and analytical support for purposes of
evaluating the impact of our Dodd-Frank Act rules.
Thank you once again for the opportunity to review and comment on the
draft report. I am committed to improving the Commission's processes
for engaging in rulemaking. GAO's work on this study will assist us in
our continued efforts to improve those processes as we complete the
challenging task of fully implementing the Dodd-Frank Act.
Sincerely,
Signed by:
Mary L. Schapiro:
Chairman:
[End of section]
Appendix XII: GAO Contact and Staff Acknowledgments:
GAO Contact:
A. Nicole Clowers, (202) 512-8678 or clowersa@gao.gov:
Staff Acknowledgments:
In addition to the contact named above, Richard Tsuhara (Assistant
Director), Holland Avery, Timothy Bober, Emily Chalmers, William R.
Chatlos, Philip Curtin, Rachel DeMarcus, Lawrance Evans, Denise
Fantone, Timothy Guinane, Thomas McCool, Jon Menaster, Patricia Moye,
Robert Pollard, Jessica Sandler, Andrew Stavisky, and Eva Yikui Su made
key contributions to this report.
[End of section]
Footnotes:
[1] Federal Reserve Flow of Funds database (Mar. 6, 2008, and Mar. 11,
2010). Available at [hyperlink,
http://www.federalreserve.gov/releases/z1].
[2] Pub. L. No. 111-203, 124 Stat. 1376 (2010). Title X of the Dodd-
Frank Act, also called the Consumer Financial Protection Act of 2010,
creates CFPB as a new executive branch agency to enforce certain
existing federal consumer protection laws and promulgate new rules
regarding federal consumer financial laws.
[3] Executive Order No. 12,866, 58 Fed. Reg. 51,735 (Sept. 30, 1993).
[4] Independent regulatory agencies are those defined by 44 U.S.C. §
3502(5).
[5] Pub. L. No. 112-10, § 1573(a), 125 Stat. 38, 138-39 (2011)
(codified at 12 U.S.C. § 5496b).
[6] Id.
[7] We use the term "rules" in this report generally to refer to
Federal Register notices of agency action pursuant to the Dodd-Frank
Act, including regulations, interpretive rules, general statements of
policy, and rules that deal with agency organization, procedure, or
practice.
[8] As independent regulatory agencies that are not required to follow
the economic analysis requirements of E.O. 12,866, the financial
regulators are also not required to follow OMB Circular A-4. We used
Circular A-4 as an example of best practices for agencies to follow
when conducting their regulatory analyses and therefore used it as
criteria for this report.
[9] See GAO, Financial Regulation: Industry Trends Continue to
Challenge the Federal Regulatory Structure,
[http://www.gao.gov/products/GAO-08-32] (Washington, D.C.: Oct. 12,
2007).
[10] For further information on regulation of futures markets, see GAO,
Financial Regulation: Industry Changes Prompt Need to Reconsider U.S.
Regulatory Structure, [http://www.gao.gov/products/GAO-05-61]
(Washington, D.C.: Oct. 6, 2004), 34.
[11] The APA also contains requirements for formal rulemaking, which is
used in rate-making proceedings and other cases involving a statute
that requires rules to be made "on the record." Formal rulemaking
incorporates evidentiary (or "trial type") hearings, in which
interested parties may present evidence, conduct cross-examinations of
other witnesses, and submit rebuttal evidence. However, few statutes
require such on-the-record hearings.
[12] 5 U.S.C. § 553. The notice is to contain (1) a statement of the
time, place, and nature of public rulemaking proceedings; (2) reference
to the legal authority under which the rule is proposed; and (3) either
the terms or substance of the proposed rule or a description of the
subjects and issues involved.
[13] Pub. L. No. 104-13, 109 Stat. 163 (1995) (codified at 44 U.S.C. §§
3501-3520); Pub. L. No. 96-354, 94 Stat. 1164 (1980) (codified at 5
U.S.C. §§ 601-612).
[14] 44 U.S.C. § 3504.
[15] PRA generally defines a "collection of information" as the
obtaining or disclosure of facts or opinions by or for an agency from
10 or more nonfederal persons. 44 U.S.C. § 3502(3). Many information
collections, recordkeeping requirements, and third-party disclosures
are contained in or are authorized by regulations as monitoring or
enforcement tools, while others appear in separate written
questionnaires for purposes of developing the regulation.
[16] 5 U.S.C. § 603.
[17] 5 U.S.C. §§ 603-605.
[18] § 15(a), 42 Stat. 998 (1922) (codified, as amended, at 7 U.S.C.
§19(a).
[19] Under the act, a "covered person" is "any person that engages in
offering or providing a consumer financial product or service; and any
affiliate of such a person if such affiliate acts as a service provider
to such person." 12 U.S.C. § 5481(6). See also 12 U.S.C. § 5512(b)(2).
This requirement refers to depository institutions and credit unions
with $10 billion or less in assets, as described in section 1026(a) of
the Consumer Financial Protection Act.
[20] 5 U.S.C. §§ 603(d), 604(a).
[21] Pub. L. No. 104-290, § 106(a), 110 Stat. 3416, 3424 (1996)
(codified at 15 U.S.C. § 77b(b)). Conforming amendments to the
Investment Advisers Act of 1940 were made in section 224 of the Gramm
Leach Bliley Act. Pub. L. No. 106-102, § 224, 113 Stat. 1338, 1402
(1999) (codified at 15 U.S.C. § 80b-2(c)).
[22] § 23(a)(2), 48 Stat. 881 (1934) (codified at 15 U.S.C. §
78w(a)(2)).
[23] Pub. L. No. 103-325, § 302, 108 Stat. 2160, 2214-15 (1994)
(codified at 12 U.S.C. § 4802).
[24] Executive Order No. 12,866, 58 Fed. Reg. 51,735 (Sept. 30, 1993).
For significant rules (those with an annual effect on the economy of
$100 million or more), the order further requires agencies to prepare a
detailed regulatory (or economic) analysis of both the costs and
benefits.
[25] More recently, Executive Order 13563 supplements E.O. 12866, in
part by incorporating its principles, structures, and definitions.
Exec. Order 13563, 76 Fed. Reg. 3821 (Jan. 18, 2011). Prior to the Dodd
Frank Act, OCC was subject to E.O. 12866 and thus assessed the benefits
and costs of economically significant rulemakings. The Dodd-Frank Act
amended 44 U.S.C. § 3502(5) so that OCC is now an independent
regulatory agency. OCC is currently revising its rulemaking policies
and procedures to reflect this change. This change places OCC in the
same position as the other federal financial regulators with which OCC
often writes joint rules.
[26] Office of Management and Budget, Circular A-4: Regulatory
Analysis, September 17, 2003. Circular A-4 replaces OMB's "best
practices" guidance issued in 1996 and 2000. Executive Order 13579
(E.O. 13579) encourages independent regulatory agencies to comply with
E.O. 13563. E. O. 13579, 76 Fed. Reg. 41587 (July 14, 2011).
[27] OMB Circular A-4.
[28] See Office of Inspector General, Board of Governors of the Federal
Reserve System, "Response to a Congressional Request Regarding the
Economic Analysis Associated with Specified Rulemakings," (June 2011);
Office of Inspector General, Federal Deposit Insurance Corporation,
Evaluation of the FDIC's Economic Analysis of Three Rulemakings to
Implement Provisions of the Dodd-Frank Act," Report No. EVAL-11-003
(June 2011); Office of Inspector General, Commodity Futures Trading
Commission, "A Review of Cost-Benefit Analyses Performed by the
Commodity Futures Trading Commission in Connection with Rulemakings
Undertaken Pursuant to the Dodd-Frank Act," (June 13, 2011); Office of
Inspector General, United States Securities and Exchange Commission,
"Report of Review of Economic Analyses Performed by the Securities and
Exchange Commission in Connection with Dodd-Frank Act Rulemakings,"
(June 13, 2011); Office of Inspector General, Department of Treasury,
"Dodd-Frank Act: Congressional Request for Information Regarding
Economic Analysis by OCC," OIG-CA-11-006 (June 13, 2011).
[29] The CFTC guidance was published on May 13, 2011, and thus did not
apply to rulemakings within the scope of this review. The SEC guidance
was last revised in 1999 and reflects OMB's "best practices" guidance
issued in 1996.
[30] One SEC rule, Beneficial Ownership Reporting Requirements and
Security-Based Swaps, 76 Fed. Reg. 34579 (June 14, 2010) was
implemented at the discretion of SEC but was not included among the 10
rules in our regulatory analysis study. We omitted the rule from our
study because SEC stated that it readopted existing rules without
change in order to preserve the regulatory status quo while agency
staff continues to develop proposals to modernize reporting
requirements under Exchange Act section 13(d) and 13(g). We note that
SEC conducted required regulatory analyses of the readopted rule.
[31] As defined by the Congressional Review Act, a major rule is a rule
that the OIRA Administrator finds has resulted in or is likely to
result in (1) an annual effect on the economy of $100 million or more,
(2) a major increase in costs or prices, or (3) significant adverse
effects on competition, employment, investment, productivity, or
innovation. 5 U.S.C. § 804(2). This is similar, but not identical to,
the definition of an economically significant rule under E.O. 12866.
[32] We compared the selected rules against a checklist we developed
based on OMB Circular A-4, as an example of best practices, to
determine the extent to which the agencies' assessed the impact of the
rules on the economy. Several studies have used a similar approach to
assess the quality of regulatory analyses being done by federal
agencies. See, for example, Hahn, Robert W. and Patrick Dudley, How
Well Does the Government Do Cost-Benefit Analysis?, AEI-Brookings Joint
Center for Regulatory Studies, Working Paper 04-01 (April 2005).
[33] Edwin Sherwin, "The Cost-Benefit Analysis of Financial Regulation:
Lessons from the SEC's Stalled Mutual Fund Reform Effort," Stanford
Journal of Law, Business, & Finance, Vol. 12:1, Fall, 2006, 2.
[34] Arthur Fraas and Randall Lutter, "On the Economic Analysis of
Regulations at Independent Regulatory Commissions: Would Greater Use of
Economic Analysis Improve Regulatory Policy at Independent Regulatory
Commissions?", Resources for the Future, RFF DP 11-16, April 2011.
[35] See [hyperlink, http://www.gao.gov/products/GAO-08-32].
[36] See Business Roundtable v. SEC, 647 F. 3d 1144 (D.C. Cir. 2011).
[37] Office of Inspector General, U.S. Commodity Futures Trading
Commission, "An Investigation Regarding Cost-Benefit Analyses Performed
by the Commodity Futures Trading Commission in Connection with
Rulemakings Undertaken Pursuant to the Dodd-Frank Act" (Apr. 15, 2011).
[38] This requirement is statutory and not unique to federal financial
regulatory agencies. OMB views this requirement as essential to
ensuring the maximum utilization of the information being requested by
the agency.
[39] Section 619 (the Volcker Rule) prohibits banking entities, which
benefit from federal insurance on customer deposits or access to the
discount window, from engaging in proprietary trading or investing in
or sponsoring hedge funds or private equity funds, subject to certain
exceptions.
[40] The act does not expressly define the terms "consult" or
"coordinate." For the purposes of our report, we use the terms
interchangeably.
[41] Title I is also known as the Financial Stability Act of 2010. FSOC
consists of 10 voting members and 5 nonvoting members and brings
together the expertise of federal financial regulators, state
regulators, and an insurance expert appointed by the President. Its
voting members include the Secretary of the Treasury, who is the
chairman of FSOC, and the heads of the Federal Reserve Board, OCC,
CFPB, SEC, FDIC, CFTC, and NCUA.
[42] 12 U.S.C. § 5322(a)(2)(E).
[43] 12 U.S.C. § 5512(b)(2)(C).
[44] For information on systemically important firms, see Sections 804
and 805 of the Dodd-Frank Act.
[45] The orderly liquidation authority given to FDIC in the Dodd-Frank
Act creates a process by which FDIC may serve as a receiver for large,
interconnected financial companies whose failure may pose a risk to the
financial stability of the United States. For further information, see
Sections 201 through 217 of the Dodd-Frank Act.
[46] For further information, see Sections 711 through 774 of the Dodd-
Frank Act.
[47] The 18 final rules were selected based on whether they required
interagency coordination or could have benefited, in our judgment, from
any interagency coordination. To make this determination, we looked for
regulations involving issues or subject matters that were overseen by
multiple federal financial regulators. There also were three notices
and one list that had coordination or consultation requirements under
the Dodd-Frank Act but were not reviewed under this objective because
they were not regulations.
[48] The two rules requiring agency coordination were issued by SEC.
See Rules of Practice, 76 Fed. Reg. 4066 (Jan. 24, 2011), which
formalizes the process SEC will use when conducting proceedings to
determine whether a self-regulatory organization's proposed rule change
should be disapproved, and Beneficial Ownership Reporting Requirements
and Security-Based Swaps, 76 Fed. Reg. 34579 (June 14, 2011), which
readopts without change portions of SEC's existing beneficial ownership
rules.
[49] An example of a novel derivative product is a futures contract
based on shares of the SPDR® Gold Trust, an exchange-traded fund.
[50] GAO, Results-Oriented Government: Practices That Can Help Enhance
and Sustain Collaboration among Federal Agencies, [hyperlink,
http://www.gao.gov/products/GAO-06-15] (Washington, D.C.: Oct. 21,
2005).
[51] FSOC has several committees: (1) a Deputies Committee comprised of
senior staff from member agencies that is responsible for overseeing
the work of the other committees; (2) a Systemic Risk Committee, with
two subcommittees, that provides structure for FSOC's analysis of
emerging threats to financial stability; and (3) five functional
committees that support FSOC's work on specific provisions assigned to
it.
[52] The Federal Financial Institutions Examination Council (FFIEC) was
established in 1979, pursuant to Title X of the Financial Institutions
Regulatory and Interest Rate Control Act of 1978. The Dodd-Frank Act
eliminated OTS, which was also part of FFIEC, and transferred its
authority to the OCC, FDIC, and Federal Reserve Board. Furthermore, in
accordance with the Dodd-Frank Act, the Director of the CFPB will join
the membership of the Council. The State Liaison Committee is a voting
member of FFIEC and includes representatives from the Conference of
State Bank Supervisors, the American Council of State Savings
Supervisors, and the National Association of State Credit Union
Supervisors. FFIEC is supported by a small administrative staff in its
operations office and examiner program. All other staff are pulled from
its member financial regulators.
[53] Douglas W. Elmendorf, Director of the Congressional Budget Office,
Review of CBO's Cost Estimate for the Dodd-Frank Wall Street Reform and
Consumer Protection Act, before the Subcommittee on Oversight and
Investigations Committee on Financial Services, House of
Representatives (Mar. 30, 2011).
[54] See, for example, Viral V. Acharya, Thomas Cooley, Matthew
Richardson, Richard Sylla, and Ingo Walter, "The Dodd-Frank Wall Street
Reform and Consumer Protection Act: Accomplishments and Limitations,"
Journal of Applied Corporate Finance, Vol. 23, No. 1 (2011); and Peter
J. Wallison, The Error at the Heart of the Dodd-Frank Act, American
Enterprise Institute for Public Policy Research, Financial Services
Outlook, August-September 2011.
[55] Pub. L. No. 104-208, § 2222, 110 Stat. 3009, 3009-414 to 3009-415
(1996) (codified at 12 U.S.C. § 3311).
[56] FFIEC, Joint Report to Congress July 31, 2007; Economic Growth and
Regulatory Paperwork Reduction Act; Notice, 72 Fed. Reg., 62036 (Nov.
1, 2007).
[57] Pub. L. No. 96-354, § 610, 94 Stat. 1164, 1169 (1980) (codified at
5 U.S.C. § 610).
[58] Section 610 reviews must address the (1) continued need for the
rule; (2) nature of public complaints or comments received concerning
the rule from the public; (3) rule's complexity; (4) extent to which
the rule overlaps, duplicates or conflicts with other rules, and, to
the extent feasible, with state and local rules; and (5) length of time
since the rule has been evaluated or the degree to which technology,
economic conditions, or other factors have changed in the area affected
by the rule.
[59] In their study on consumer financial protection, Campbell et al.
note that CFPB should follow a disciplined process when considering new
financial regulations, including evaluating both potential and existing
regulations to determine whether regulatory interventions actually
deliver the desired improvements in the metrics for success. See
Campbell, John Y., Howell E. Jackson, Brigitte C. Madrian, and Peter
Tufano, Consumer Financial Protection, Journal of Economic
Perspectives, Vol. 25, No. 1 (2011).
[60] 76 Fed. Reg. 38328 (June 30, 2011).
[61] 76 Fed. Reg. 56128 (Sept.12. 2011).
[62] Federal financial regulators may review and have reviewed their
rules based on their own discretion. For example, regulators have
reviewed rules in response to discussions with industry or based on an
internal policy.
[63] See GAO, Reexamining Regulations: Opportunities Exist to Improve
Effectiveness and Transparency of Retrospective Reviews, [hyperlink,
http://www.gao.gov/products/GAO-07-791] (Washington, D.C.: July 16,
2007).
[64] Section 622 of the Dodd-Frank Act establishes a financial sector
concentration limit that generally prohibits a financial company from
merging or consolidating with, or acquiring, another company if the
resulting company's consolidated liabilities would exceed 10 percent of
the aggregate consolidated liabilities of all financial companies at
the end of the calendar year preceding the transaction. This
concentration limit is intended, along with a number of other
provisions in the Dodd-Frank Act, to promote financial stability and
address the perception that large financial institutions are too big to
fail.
[65] FSOC, Study and Recommendations regarding Concentration Limits on
Large Financial Companies Completed Pursuant to Section 622 of the Dodd-
Frank Wall Street Reform and Consumer Protection Act (January 2011).
[66] FSOC, Study of the Effects of Size and Complexity of Financial
Institutions on Capital Market Efficiency and Economic Growth Pursuant
to Section 123 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010 (January 2011).
[67] The Dodd-Frank Act established the Office of Financial Research
within the Treasury Department to improve the quality of financial data
available to policymakers and facilitate more robust and sophisticated
analysis of the financial system. To help with the identification of
emerging risks to financial stability, FSOC can provide direction to
and request data and analyses from the office.
[68] See, for example, Howell E. Jackson, "Variation in the Intensity
of Financial Regulation: Preliminary Evidence and Potential
Implications," Yale Journal of Regulation, Vol. 24 (2007).
[69] [hyperlink, http://www.gao.gov/products/GAO-08-32].
[70] [hyperlink, http://www.gao.gov/products/GAO-07-791].
[71] We use the term "rules" in this report generally to refer to
Federal Register notices of agency action pursuant to the Dodd-Frank
Act, including regulations, interpretive rules, general statements of
policy, and rules that deal with agency organization, procedure, or
practice.
[72] Federal Reserve Bank of St. Louis, "Dodd-Frank Regulatory Reform
Rules -Final Rules and Notices," [hyperlink,
http://www.stlouisfed.org/regreformrules/final.aspx].
[73] Davis Polk and Wardwell, Dodd-Frank Progress Report, "July 22,
2011 Report," [hyperlink, http://www.davispolk.com/Dodd-Frank-
Rulemaking-Progress-Report].
[74] One Dodd-Frank Act rule, Beneficial Ownership Reporting
Requirements and Security-Based Swaps, 76 Fed. Reg. 34579 (June 14,
2011), was implemented at the discretion of the Securities and Exchange
Commission (SEC) but was not included among the 10 rules in our
regulatory analysis study. We omitted the rule from our study because
SEC stated that it readopted existing rules without change in order to
preserve the regulatory status quo while agency staff continues to
develop proposals to modernize reporting requirements under Exchange
Act sections 13(d) and 13(g).
[75] The Office of the Comptroller of the Currency (OCC) is an
independent regulatory agency, but agency officials told us that OCC
complies with UMRA and they continue to apply it to rulemakings.
[76] The CFTC Reauthorization Act was intended, among other things, to
further clarify CFTC's jurisdiction in the area of retail foreign
exchange transactions, and to give CFTC additional authority to
regulate retail foreign exchange transactions. To remedy the large
number of fraud cases where jurisdiction had been questioned, the CFTC
Reauthorization Act gave CFTC jurisdiction over certain leveraged
retail foreign exchange contracts without regard to whether it could
prove the contracts were off-exchange futures contracts. See 75 Fed.
Reg. 3282 (Jan. 20, 2010).
[77] The initial proposed rule also included "consideration of rules to
implement Section 15E(s)(4)(A) of the Exchange Act, which requires
issuers or underwriters of any asset-backed security to make publicly
available the findings and conclusions of any third-party due diligence
report the issuer or underwriter obtains." 75 Fed. Reg. 4232. The final
adoption has been delayed based on the suggestion by several
commentators that the new Exchange Act Section 15E(s)(4) should be read
as a whole. Id.
[78] 76 Fed. Reg. 4241.
[79] Id.
[80] Although issuers in registered offerings are not required to use a
third party to satisfy the review requirement, if the findings and
conclusions of the review will be attributed to a third party, a third
party would be required to consent to being named in the registration
statement and thereby accept potential expert liability.
[81] In addition to the comment period for this particular rule, to
facilitate public input on the Dodd-Frank Act, SEC provided on its Web
site a series of e-mail links, organized by topic, that allowed for the
submission of comments.
[82] Rule 15Ga-1 requires any securitizer of asset-backed securities to
disclose fulfilled and unfulfilled repurchase requests across all
trusts aggregated by securitizer, so that investors may identify asset
originators with clear underwriting deficiencies.
[83] This rule amends Regulation AB with respect to disclosures
regarding sponsors in prospectuses and with respect to disclosures
about the asset pool in periodic reports, so that issuers would be
required to include the disclosures in the same format as required by
Rule 15Ga-1.
[84] In addition to the comment period for this particular rule, to
facilitate public input on the Dodd-Frank Act, SEC provided on its Web
site a series of e-mail links, organized by topic, that allowed for the
submission of comments.
[85] Banker's banks must be owned exclusively by depository
institutions or depository institution holding companies and all of
their subsidiaries must be engaged exclusively in providing services to
or for other depository institutions, and the officers, directors and
employees thereof.
[86] 12 U.S.C. § 1817(e)(2)(B). In lieu of dividends, the rule provides
for progressively lower assessment rates when the DIF reserve ratio
exceeds 2 percent and 2.5 percent.
[87] A large IDI is generally defined as an IDI with at least $10
billion in assets.
[88] Section 951 requires disclosure of any agreements or
understandings with named executive officers of the acquiring issuer
concerning any type of compensation that is based on or relates to the
acquisition, merger, consolidation, sale, or other disposition of all
or substantially all of the assets of the issuer and the aggregate
total of all such compensation that may have been paid or become
payable to or on behalf of such executive officer.
[89] In addition to the comment period for this particular rule, to
facilitate public input on the Dodd-Frank Act, SEC provided on its Web
site a series of e-mail links, organized by topic, that allowed for the
submission of comments.
[90] Generally, retail customers are customers that do not qualify as
eligible contract participants under the Commodity Exchange Act.
Individuals with less than $10 million in total assets, or less than $5
million in total assets if entering into the transaction to manage
risk, would be considered retail customers.
[91] See sections 407 and 408 of the Dodd-Frank Act.
[92] "Qualifying investments" are generally directly acquired equity
securities of "qualifying portfolio companies."
[93] In addition to the comment period for this particular rule, to
facilitate public input on the Dodd-Frank Act, SEC provided on its Web
site a series of e-mail links, organized by topic, that allowed for the
submission of comments.
[94] FDIC Policy Statement, 63 FR 25 15 7 (May 7, 1998).
[95] This GAO finding is consistent with a recent review by the FDIC's
Office of Inspector General ("OIG") which also reported that the FDIC
generally incorporated into its Policy Statement and normal rulemaking
analysis the broad principles that guide economic analysis under the
above-cited executive orders and Circular A-4. FDIC OIG Report
"Evaluation of the FDIC's Economic Analysis of Three Rulemakings to
Implement Provisions of the Dodd-Frank Act, EVAL-11-003, (June 2011) at
17-18.
[96] Id. at 17 (citing GAO Report, GAO-08-32).
[97] Id. at 20. Note that not all of the 16 regulatory actions reviewed
are final rules, including an FDIC notice issued under the Federal
Advisory Committee Act. One of our staff's technical comments being
provided to your staff concerns this discrepancy in numbers.
[98] GAO identifies OMB Circular A-4 as an example of best practices
for federal financial agencies to follow but does not discuss the
application of Circular A-4 and benefit-cost analysis generally in
light of the unique role that federal financial regulators in the area
of supervising financial institutions' safety and soundness. (See GAO
Report p. 2, 13)
[99] GAO Report, p. 16-17; See also p. 32.
[100] 44 FR 3957 (Jan. 19, 1979).
[101] If the UMRA threshold is met, an agency must prepare a detailed
economic assessment of the rule's anticipated costs and benefits,
including: (1) a qualitative and quantitative assessment of the
anticipated costs and benefits of the Federal mandate; (2) estimates of
the future compliance costs and any disproportionate budgetary effects
on any regions, governments, communities, or private sector segMents;
and (3) where relevant, estimates of the national economic effect.
[End of section]
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