Dodd-Frank Act Regulations: Implementation Could Benefit from Additional Analyses and Coordination

In a November 2011 report, we recommended that the Federal Deposit Insurance Corporation (FDIC) revise its rulemaking policies and procedures to more fully incorporate the specific practices in OMB's regulatory analysis guidance. On April 17, 2013, FDIC issued an updated policy statement on the development and review of FDIC regulations and policies. In the policy statement, FDIC describes specific principles in its regulatory analysis that incorporate OMB's guidance. For instance, FDIC's updated guidance states that, once the need for a regulation is determined, staff evaluates the benefits and costs based on available information and considers reasonable and possible alternatives. This language is similar to OMB's guidance, which states that a good regulatory analysis should include a statement of the need for proposed action, an examination of alternative approaches, and an evaluation of the benefits and costs of the proposed action and the main alternatives identified by the analysis. In addition, FDIC's updated guidance states that, prior to issuing a final rule, the potential benefits are weighted against the potential costs of the regulation, and FDIC staff should discuss key implications they considered in their analysis. This language is also similar to OMB's guidance, which states that, in evaluating regulatory alternatives, agencies "should carefully consider all appropriate alternatives for the key attributes or provisions of the rule" and "should clearly set out the basic assumptions, methods, and data underlying the analysis." We believe that these principles, among others, in FDIC's updated guidance respond to our recommendation.

In May 2018, NCUA told us that it adopted a comprehensive internal policy related to the promulgation of NCUA regulations that incorporates principles outlined in OMB guidance. For example, NCUA will assess the need for regulation and consider non-regulatory alternatives to achieve the intended objectives. Also, NCUA will analyze the impact that a regulation will have and evaluate the regulation's measurable costs and benefits based on available information. We reviewed NCUA's policy and found it is responsive to our recommendation. NCUA has more fully incorporated OMB's regulatory analysis guidance into its rulemaking procedures within the context of its statutory mandate to ensure the safety and soundness of federal credit unions. Therefore, we are closing the recommendation as implemented.

In a November 2011 report, we recommended that the United States Securities and Exchange Commission (SEC) revise its rulemaking policies and procedures to more fully incorporate the specific practices in the Office of Management and Budget's (OMB) regulatory analysis guidance. In March 2012, SEC issued revised guidance on economic analysis for SEC rules. SEC stated that, although it is not required to follow OMB's guidance, it drew on principles found therein. Specifically, the guidance directs staff to (1) clearly identify the justification for the proposed rule; (2) define a baseline against which to measure the likely economic consequences of the proposed rule; (3) identify alternative regulatory approaches; and (4) evaluate the benefits and costs--both quantitative and qualitative--of the proposed action ad the main alternatives. These are the basic elements of good regulatory analysis as set forth in OMB's guidance. In addition, SEC cites specific language in the OMB guidance to illustrate how each of the elements can be applied during a rulemaking. For example, regarding evaluating of benefits and costs, the SEC guidance directs staff to (1) identify and describe the most likely economic benefits and costs of the proposed rule and alternatives; (2) quantify those expected benefits and costs to the extent possible; (3) for those elements of benefits and costs that are quantified, identify the source or method of quantification and discuss any uncertainties underlying the estimates; and (4) for those elements that are not quantified, explain why the cannot be quantified. We found that each of these steps has a basis in the OMB guidance. Therefore, we believe that SEC has responded to our recommendation.

On July 7, 2014, CFPB updated its internal policies and procedures for conducting analyses of benefits and costs that were published on an interim basis on January 9, 2012. The updated guidance states that CFPB aims to define problems carefully, consider a wide variety of options, and evaluate their benefits and costs. This general approach is consistent with the key elements of regulatory analysis defined in OMB's regulatory analysis guidance. In addition, the updated guidance notes that CFPB has unique regulatory analysis requirements under Section 1022(b)(2) of the Dodd-Frank Act. The updated guidance includes a section with guidance on the manner and methods for considering the benefits, costs, and impacts enumerated in Section 1022(b)(2) that draws on the spirit of Executive Order 12866 and OMB's regulatory analysis guidance. In this section, the updated guidance included new language concerning the challenges associated with quantifying the costs and benefits of a rule. Specifically, it now states that "staff should describe the kinds of data that would be necessary for quantifying or monetizing benefits or costs and then explain why this data is not available." This language incorporates OMB's regulatory analysis guidance regarding benefits and costs that are difficult to quantify or monetize into CFPB's regulatory analysis guidance. In addition, CFPB told us that it is working with a professor from Harvard Law School to inventory and analyze approaches to cost-benefit analysis followed by other federal agencies in contexts similar to those facing CFPB. Finally, CFPB reported that it will be hosting a conference with outside experts from other agencies and academics with respect to measuring benefits from consumer finance regulation. As a result, CFPB is better positioned to ensure that it more closely follows OMB's regulatory analysis guidance during future rulemakings.

In June 2016, CFTC stated that its General Counsel and Chief Economist issued detailed written guidance in May 2011 on the consideration of costs and benefits in their rulemakings. The guidance discusses regulatory analysis in the contact of Section 15(a) of the Commodity Exchange Act, which specifies the requirements that CFTC must satisfy in considering the costs and benefits of final rulemakings. CFTC officials also stated that the guidance explicitly instructs staff considering the costs and benefits to take key aspects of OMB's regulatory analysis guidance into account, and to incorporate the principles of Executive Order 13563 to the extent reasonably feasible. In our November 2011 report, we applied this recommendation to CFTC because the May 2011 guidance did not apply to the rulemakings we were reviewing. Given that the guidance is now applicable, and includes key aspects of OMB's regulatory analysis guidance, we believe CFTC has responded to our recommendation.

In a November 2011 report, we recommended that the Federal Deposit Insurance Corporation (FDIC) develop a plan for measuring the impact of the Dodd-Frank Act regulations. On April 17, 2013, FDIC published an updated policy statement on the development and review of FDIC regulations and policies. It included a section entitled "Periodic Review of Existing Regulations and Statements of Policy." In the section, FDIC described the ways in which it conducts periodic review of regulations, including (1) review in conjunction with a change to a regulation or policy statement triggered by a change in the law; (2) review at least once every ten years under the Economic Growth and Regulatory Paperwork Reduction Act of 1996; and (3) targeted review in a specific area based on changes in the markets or observations at bank examinations. FDIC also described the factors that should be considered in determining whether a regulation or policy statement should be revised or eliminated, including (1) the continued need for the regulation or policy; (2) opportunities to simplify or clarify the regulation or policy; (3) the need to eliminate duplicative or inconsistent regulations and policies; and (4) the extent to which technology, economic conditions, and other factors have changed in the area affected by the regulation or policy. We believe that FDIC's updated guidance responds to our recommendation.

In July 2016, SEC stated that it plans for retrospective reviews in three ways. First, they have general retrospective review approaches through informal and formal processes. Formal processes include Regulatory Flexibility Act reviews and formal petitions from industry and Congress. Informal processes include informal discussions with industry and Congressional representatives about challenges associated with regulations; informal comments by Commissioners about regulatory reviews; and, initiatives undertaken by staff to review regulations. Second, SEC plans for retrospective reviews through the application of guidance for economic analysis in rulemakings. The establishment of a baseline, as prescribed by the guidance, enables staff to develop a clear understanding of current market conditions. The baseline helps them monitor changes in market conditions after the regulation is implemented. Finally, the guidance on economic analysis in rulemakings places increased emphasis on data and measuring the impact of regulations quantitatively. Staff now builds into regulations data-driven analysis that they intend to do at a later date. For example, the rule defining swap dealers includes a threshold determining whether the rule applies to certain swap dealers. The rule includes a look-back provision that reflects the understanding that the market will change and thus the threshold will need to be adjusted. Similar look-back provisions were built into rules regarding reporting of swap information and credit risk retention. We believe that SEC's approaches for measuring the impact of Dodd-Frank Act regulations respond to our recommendation.

In June 2016, CFTC stated that it voluntarily created a Plan for Retrospective Review of Agency Regulations pursuant to Executive Order 13563 and published the plan in the Federal Register on June 30, 2011. In the release, CFTC stated that it intends to begin the process of the periodic, retrospective review of the remainder of its regulations (i.e., those regulations that were not reviewed as part of the Dodd-Frank effort). Therefore, CFTC officials stated that the plan will incorporate a review of Dodd-Frank rulemakings and solicit public input on which rules should be reviewed. We reviewed the plan as well as the sixth status report on implementation of the plan that was published in January 2014. We believe that the plan and CFTC's subsequent implementation of the plan respond to our recommendation.

In May 2018, NCUA adopted a comprehensive internal policy related to Promulgation of NCUA Regulations that includes an outline of NCUA's plan for retrospectively reviewing regulations. Specifically, NCUA's plan will enable the agency to determine (1) if there is a continued need for the regulation; (2) opportunities to minimize regulatory burden and clarify requirements; (3) unaddressed issues and (4) areas to expand credit union authority. In addition, NCUA's policy of reviewing one-third of its regulations each year includes a request for public comment. NCUA also voluntarily complies with the Economic Growth and Regulatory Paperwork Reduction Act of 1996, which requires publication of the results of a comprehensive review of agency regulations at least once every ten years. Finally, NCUA's new policy assigns the Regulatory Reform Task Force with responsibility for overseeing NCUA's regulation review process and reporting annually to NCUA's Board. We reviewed NCUA's policy and find that it is responsive to our recommendation. NCUA's regulatory review plan puts the agency in position to determine how and when to collect, analyze, and report needed data on the impact of its regulations. Therefore, we are closing this recommendation as implemented.

In a December 2013 report, we reported that CFPB is focusing on fulfilling its retrospective review requirements under section 1022 of the Dodd-Frank Act. Under the act, CFPB is required to assess retrospectively each significant rule or order adopted by CFPB under federal consumer financial law to address, among other things, the rule or order's effectiveness in meeting the act's purposes and goals. CFPB is required to publish a report of its assessment no later than 5 years after the rule or order's effective date, and is required to solicit public comment to inform its assessment. CFPB officials said that they were in the initial stage of developing a review plan, which includes identifying what data will be needed and how such data can be collected, but said that they had not yet drafted a plan. In a related effort, CFPB requested public comment in December 2011 on streamlining regulations it inherited from other federal agencies. As a result of the comments received, CFPB identified several priority areas for regulatory action. For example, in May 2013, CFPB issued a final rule amending the ability-to-pay regulations under the Credit Card Accountability Responsibility and Disclosure Act of 2009 in response to industry participants' comments to its December 2011 request. We believe that CFPB's actions are responsive to our recommendation.

In March 2017, the federal banking regulators sent Congress their report of the second Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA). Under EGRPRA, the regulators must jointly conduct a review of their regulations every 10 years and consider whether any of the regulations are outdated, unnecessary, or unduly burdensome. The regulators included within their review's scope some regulations issued pursuant to the Dodd-Frank Act. To carry out the EGRPRA review, the regulators generally solicited public comments on their covered regulations through Federal Register notices and public outreach meetings. In addition to the EGRPRA reviews, OCC staff told us that the agency regularly conducts other retrospective reviews on a rule-specific basis that incorporate data collection and analysis. For example, the staff said that the Dodd-Frank Act's Volcker, stress test, and recovery planning rules have specific data requirements, and are evaluated on an annual basis. OCC also collects data and receives feedback on the impact of Dodd-Frank Act regulations through its routine examinations. Through such processes, OCC has developed, in effect, plans to collect and analyze data to help measure the impact of Dodd-Frank Act regulations.

In March 2017, Treasury noted that the President issued an executive order in February 2017, setting forth the administration's policy to regulate the U.S. financial system in a manner consistent with enabling U.S. companies to be competitive, making regulation efficient and effective, rationalizing the federal financial regulatory framework, and other core principles. The executive order instructed the Secretary of the Treasury to report within 120 days and periodically thereafter to the President on, among other things, the extent to which existing laws, regulations, and other policies promote the core principles of financial regulation and the actions that have been taken to promote the core principles. The executive order also instructed the Secretary of the Treasury to consult with the heads of the member agencies of FSOC as part of the report process. Treasury noted that OFR will be contributing internally to this work. As the FSOC chair, the Secretary of the Treasury's approach is consistent with our recommendation; therefore, we are closing this recommendation.

In June 2019, Board staff told us that the agency created the Policy Assessment Group, which is composed of six economists and supporting staff, in the fall of 2017. They said that the group has actively participated in the Federal Reserve's ongoing rulemakings to ensure that the agency effectively and consistently evaluates the impacts, such as costs and benefits, of its proposed rules. Board staff also said that the agency has published more frequently supplemental quantitative analyses to help support its rulemakings, including white papers that are incorporated into the Federal Register notices or made available separately on its public website. The Policy Assessment Group should help strengthen the rigor, transparency, and consistency of the Federal Reserve's regulatory analyses, consistent with our recommendation.

In November 2011, we recommended that the federal financial regulators, including the Office of the Comptroller of the Currency (OCC), take steps to better ensure that the specific practices in the Office of Management and Budget's (OMB) regulatory analysis guidance are more fully incorporated into their rulemaking policies and procedures. In December 2011, OCC issued a rulemaking procedures guidance that updated their procedures for economic analysis in OCC rulemaking. One of the stated purposes of the guidance is to ensure that OCC complies with the rulemaking requirements imposed by the statutes and executive orders that apply to various aspects of the rulemaking process. The OCC guidance on economic analysis defines the elements included in a full cost-benefit analysis in a similar fashion and includes citations to specific sections of the OMB guidance. In particular, Appendix I of the OCC guidance describes standard procedures for economic analysis of proposed and final rules. The procedures state that economists in OCC's Policy Analysis Division will determine whether a proposed rule is a major rule and, if so, they will prepare a full cost-benefit analysis consistent with the OMB guidance. There are also procedures to follow if the rule will have a significant economic impact on a substantial number of small entities. Therefore, we believe that OCC's updated guidance responds to our recommendation.

In June 2019, Board staff stated that specific reporting requirements tailored to an individual Dodd-Frank Act rule help the agency monitor compliance with the rule and provide a basis for evaluating the rule's effectiveness. For example, the Dodd-Frank Act's single-counterparty credit limits rule established reporting requirements on an institution's exposures to counterparties. According to Board staff, the agency also may use other information it collects--such as income and balance sheet data from depository institution holding companies on a quarterly basis--to assess a rule's impact. For example, the Board created the Policy Assessment Group in 2017, and the group has used data collected by the Board and external data to analyze the agency's rules implementing the Dodd-Frank Act. Moreover, the Board conducts, when needed, ad hoc quantitative impact studies to assess areas of future rulemaking or issues of particular interest. Separate from its own rule reviews, the federal banking regulators jointly completed in 2017 their second retrospective review under the Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA), which requires them to review their regulations every 10 years to consider whether any of the regulations are outdated, unnecessary, or unduly burdensome. Through its various processes, the Board has developed, in effect, plans to collect and analyze data to help measure the impact of Dodd-Frank Act regulations.

In June 2019, FSOC staff stated that FSOC has addressed issues concerning interagency coordination on rulemakings through its Regulation and Resolution Committee, which includes representatives from each of the federal financial regulatory agencies. Specifically, the committee meets quarterly and its duties include supporting FSOC in monitoring domestic financial regulatory proposals and serving as a forum for information sharing and coordination among FSOC members, including their staffs, as appropriate, regarding domestic financial services policy development. GAO reviewed the Regulation and Resolution Committee's meeting agendas from June 2018 to May 2019, which showed that the committee engages in interagency rulemaking coordination at least quarterly and has coordinated on Dodd-Frank Act rulemakings. Therefore, FSOC's Regulation and Resolution Committee should help facilitate interagency rulemaking coordination among the federal financial regulatory agencies.

In March 2012, the Consumer Financial Protection Bureau (CFPB) produced internal guidance for its rulemaking consultation process. The guidance includes clarification as to when coordination should occur, noting that multiple provisions of the Dodd-Frank Act require interagency consultation and providing baseline information for rulemaking teams to consider before the rulemaking process begins. The guidance also provides the minimum steps that CFPB rulemaking teams should take during the consultation process, including briefing and solicitation of comments from agencies that are relevant to the particular rulemaking during pre-proposal, proposal, post-proposal, and final rule stages. CFPB's guidance does not directly address the role FSOC should play in facilitating coordination, as we raised in our recommendation regarding interagency coordination. However, CFPB's guidance does formalize a coordination procedure that clearly establishes when coordination should occur and how CFPB will solicit and address comments. Therefore, we believe that CFPB's guidance responds to our recommendation.

On April 17, 2013, FDIC published an updated policy statement on development and review of FDIC regulations and statements of policy. FDIC's updated guidance included a section describing principles for development of regulations and a policy statement. Among the principles enunciated by FDIC was that "common or overlapping statutory and supervisory requirements should be implemented by the federal financial institutions regulators in a coordinated way." FDIC noted the common statutory and supervisory requirements it has with the other federal banking regulators. FDIC also noted that some of its statutory and supervisory requirements may the overlap in either substance or in effect with other financial sector regulators. Therefore, FDIC's updated guidance states that "[w]here required by law or otherwise appropriate, interagency working groups consult or collaborate to develop rules and policy statements to identify interactions and promote consistency." FDIC's updated guidance does not directly address some of the issues we raised in our recommendation regarding interagency coordination. However, the updated guidance does formalize a coordination procedure that was used informally to good effect during the Dodd-Frank Act rulemaking process. Therefore, we believe that FDIC's updated guidance responds to our recommendation.

In March 2017, Treasury noted that the President issued an executive order in February 2017, setting forth the administration's policy to regulate the U.S. financial system in a manner consistent with enabling U.S. companies to be competitive, making regulation efficient and effective, rationalizing the federal financial regulatory framework, and other core principles. The executive order instructed the Secretary of the Treasury to report within 120 days and periodically thereafter to the President on, among other things, the extent to which existing laws, regulations, and other policies promote the core principles of financial regulation and the actions that have been taken to promote the core principles. The executive order also instructed the Secretary of the Treasury to consult with the heads of the member agencies of FSOC as part of the report process. Treasury noted that OFR will be contributing internally to this work. As the FSOC chair, the Secretary of the Treasury's approach is consistent with our recommendation; therefore, we are closing this recommendation.