Regulators Likely to Miss Yearend Deadline for Key Regs

WASHINGTON — The banking agencies are likely to miss a yearend target to issue several critical rules required by the Dodd-Frank Act, according to several sources familiar with the matter.

Since the beginning of the year, top regulatory officials have expressed optimism that they would largely wrap up critical aspects of the financial reform law by Dec. 31, describing it as the "beginning of the end."

But sources said the banking agencies are not planning to issue any last minute rules ahead of Dec. 31, and instead plan to wait until early next year.

A spokeswoman for the Federal Reserve declined to comment.

What's left on regulators' checklist includes a proposal to impose a capital surcharge on eight of the largest U.S. financial institutions, including JPMorgan Chase & Co. (JPM), Citigroup Inc. (NYSE: C), and Bank of New York Mellon (BK), as well as a finalized package of rules, which implement Sections 165 and 166 of Dodd-Frank, which are considered by many as the core of the financial reform law. (Certain aspects of those sections, like stress testing, have been finalized, but not in their entirety.)

Regulators in July had also signaled plans to issue a concept proposal aimed at addressing potential risks tied to short-term wholesale funding to reduce the risk of fire sales and liquidity runs. Additionally, the Federal Reserve Board, in consultation with the Federal Deposit Insurance Corp., has been expected to unveil a plan to require large firms to issue long-term debt in an effort to facilitate their potential resolution.

Regulators had forecast they would be able to finalize several of these items by yearend, but the calendar makes it unlikely. The agencies typically provide at least seven days advance notice ahead of a planned public board meeting, and no meetings have yet been scheduled as of Friday afternoon. As a result, any meeting would have to take place during the week of Christmas and New Year's, which is not expected.

Overall this year, regulators have been pushing to get several rules out by Dec. 31. Those included finishing tougher capital rules under Basel III; proposing requirements to strengthen the types of liquid assets banks would have to hold to absorb shocks during times of crisis; introducing a second proposal to require the most globally active banks to have an extra cushion of leverage; and finalize a rule that bans banks from making risky trades with taxpayer money under the Volcker Rule.

As of Tuesday, regulators could declare victory on all of those fronts. They also moved ahead issuing a separate FDIC-led proposal for comment, which detailed the agency's strategy for resolving systemically important firms under Dodd-Frank. The strategy, known as "single point of entry," involves the agency's closing a failed firm's parent and then transferring its subsidiaries to an FDIC-managed bridge firm.

Observers argue that by continuing to repeatedly push off deadlines, it would undermine the credibility of the 2010 Dodd-Frank framework, left unfinished years later — a concern held by the Obama administration.

Karen Shaw Petrou, a managing partner at Federal Financial Analytics Inc., said regulators are "running out of time" and need to move "fast and quick" to complete the rulemaking process as speedily as possible.

Treasury Secretary Jack Lew, who presides over the Financial Stability Oversight Council, has often acted as an interlocutor among the agencies and has been putting immense pressure on regulators to get the remaining work done quickly.

In July, he predicted that much of the remaining work left for regulators to complete would be finished over the course of the next five months. "Let me repeat: by the end of this year, the core elements of the Dodd-Frank Act will be substantially in place," Lew said.

A few days later, Fed Chairman Ben Bernanke sought to hedge that target, suggesting it would take banking agencies an additional year to finish several key elements of the law.

President Obama has also held private meetings with top regulators to express urgency in finishing the rules promptly.

Coordination has been a hallmark of Dodd-Frank, but has also served to slow down regulators in their interagency rulemakings, particularly with the writing of the Volcker Rule. But now that the massive undertaking, which has taken three years to complete, is behind them, it could clear the road for them to sign off on remaining rules early next year.

"Those [remaining rules] will move faster now that they have Volcker off their plate," said Marcus Stanley, policy director of Americans for Financial Reform.

- Joe Adler contributed to this article.