The Missing Key Regulations of Dodd-Frank
July 22, 2013 8:00 AM
With the completion of Basel III final rules, regulators have at least fulfilled a Dodd-Frank Act requirement to raise capital standards. But as the financial reform law approaches its three-year anniversary on July 21, only 40% of the roughly 400 required rules have been finalized while nearly 32% have not even been proposed, according to the law firm Davis Polk.
Following is a list of some of the top Dodd-Frank rules that have not yet been completed. (Image: Bloomberg News)
Volcker Rule
Arguably the biggest missing regulation is one named after former Fed Chairman Paul Volcker that would ban banks from proprietary trading and restrict investments in private equity funds. Five regulators - the FDIC, OCC, Fed, SEC and CFTC - were required to sign off on it. In October 2011, most of the agencies issued a proposal (later followed by the CFTC) but since then the regulators have not been able to agree on a final rule. Most sources have said the FDIC, OCC and Fed agree, but there have been differences with the SEC and CFTC. Regulators have insisted it is coming before yearend. (Image: Bloomberg News)
Qualified Residential Mortgage
One of the most highly anticipated regulations is one that would require lenders to retain at least 5% of the risk of a loan before selling it to the secondary market. But the Dodd-Frank law also created certain loans, known as "qualified residential mortgages," that would not be subject to the 5% retention requirement provided they met certain criteria. Regulators issued a plan in March 2011 detailing how they would define a QRM loan, including a 20% downpayment from borrowers. The proposal was met with a firestorm of opposition from the industry and Congress. Regulators eventually concluded that they could not finalize the QRM until the Consumer Financial Protection Bureau finalized a related but separate regulation that creates so-called "qualified mortgages." The CFPB issued its rule in January of this year, but regulators have said very little about QRM since that time. (Image: Fotolia)
Section 165, 166
The Federal Reserve Board unveiled a massive proposal in December 2011 that would implement Sections 165 and 166 of the Dodd-Frank Act, what many consider the core of the financial reform law. The plan touched on several critical areas governing bank regulation, including risk-based capital and leverage requirements, resolution planning and concentration limits. The central bank has yet to finalize the rule, although Fed officials have signaled it should be completed by yearend. (Image: Bloomberg News)
Foreign Bank Supervision
Section 165 of the Dodd-Frank Act also required foreign banking companies operating within the U.S. to be subject to the same regulations as domestic firms. But the Fed delayed issuing a proposal addressing that particular issue until December 2012, a full year after its initial plan came out. The plan was met by objections from both foreign banks and overseas regulators, who argued it would hurt international cooperation and undermine global financial reform. The Fed has not yet issued its final rule. (Image: Fotolia)
Liquidity Rules
Regulators have also yet to finish new international liquidity rules (also required domestically by Dodd-Frank) designed to ensure the largest institutions can operate during a time when the system is disrupted. International regulators issued their most recent proposal in January of this year after their first effort two years earlier was met with widespread criticism from the industry and elsewhere. The most recent proposal expands the types of "highly liquid" assets included in a required liquidity buffer, but also allows globally active banks subject to the rule to build the mandated buffer over time instead of immediately. (Image: Fotolia)
Orderly Liquidation Authority
To be fair, the FDIC finalized new rules allowing it to wind down a large banking organization relatively quickly. But the agency has acknowledged that it needs to provide more details on exactly how it would unwind a firm, with FDIC Chairman Marty Gruenberg offering an outline last year about using a "single point of entry" to put a large banking company in receivership. But the FDIC missed a self-imposed deadline to provide more information by the end of last year. Top agency officials have said they will release more details by the end of 2013. (Image: Bloomberg News)
Derivatives and Swaps Regulation
Hobbled by funding issues related to Congressional appropriations, the Securities and Exchange Commission and the Commodity Futures Trading Commission have faced significant challenges in finalizing derivatives regulations required under Dodd-Frank. As of July 1, nearly half of the roughly 90 new rules have been finalized, with several that have not yet even been proposed, according to Davis Polk. (Image: Bloomberg News)
Mortgage Disclosures
Mortgage lenders are still waiting for the Consumer Financial Protection Bureau to complete its project of consolidating two mortgage disclosures, which Dodd-Frank required to be finished later this year. The new disclosure - combining requirements of the Truth in Lending Act and the Real Estate Settlement Procedures Act - is intended to be a simpler document for lenders and consumer to use. But some lenders have raised concerns about the time and cost burdens associated with the new disclosure.
"Pending the results of additional testing, we expect to issue the final rule this fall," said CFPB's Kelly Cochran in a blog on July 3. (Image: Thinkstock)
