One of the more legitimate criticisms of the Dodd-Frank financial regulatory reform bill that was signed into law by President Obama earlier this year is that it leaves too much discretion to regulators for crafting rules that will govern Wall Street’s activities. Not only does placing so much responsibility in the hands of regulators give the financial services industry ample opportunity to lobby for weaker restrictions, but it is also a time-consuming process.
And according to Reuters, the drawn out rule-writing process may provide an opening for House Republicans to blunt the effects of Dodd-Frank should they win control of the House:
If Republicans can gain control of key House committees, their chairmen could throw so many time-consuming subpoenas, hearings and information requests at regulators that rule-writing for Dodd-Frank would slow down. The Commodity Futures Trading Commission (CFTC), a small agency with a lot on its plate, could be vulnerable to this, as could the [Consumer Financial Protection Bureau], still in its infancy.
House Republicans have already made it quite clear that they would repeal Dodd-Frank if they could, and at the very least they’d like to see the newly created Consumer Financial Protection Bureau defunded. But bogging down the regulatory agencies in an avalanche of paperwork and hearing appearances is an obvious avenue for preventing Dodd-Frank’s rules from coming online, should the repeal effort fall flat (which it likely will, as President Obama would almost surely veto any repeal, even if it got through both houses of Congress).
Such a move could have a big effect, as the rule-writing process is gaining importance. Bloomberg noted today that Wall Street banks are already exploiting vagueness in the Dodd-Frank law to continue proprietary trading — trading for their own account — which the law is meant to restrict:
The banks have no intention of ceasing their prop trading. They are merely disguising the activity, by giving it some other name. A former employee of JPMorgan, for instance, wrote to say that the unit he recently worked for, called the Chief Investment Office, advertised itself largely as a hedging operation but was in fact making massive bets with JPMorgan’s capital. And it would of course continue to do so. [...] It falls to the comptroller general – - or, more specifically, the General Accountability Office, which is overseen by the comptroller general — to determine precisely what the phrase [restricting such trading] means. And, at the moment, the GAO pretty clearly hasn’t the first clue.
In a sign of potential things to come, Rep. Spencer Bachus (R-AL), who is slated to take over the House Financial Services Committee if the Republicans gain a majority, has already been begging the banks for donations, on the premise that the GOP believes financial reform was too tough.