When business problems occur, the common response is to create rules and regulations to prevent that set of problems from happening again. Unfortunately, at times the controls enacted to remedy the problems become so complex that they create new, different and sometimes more profound problems. This can lead to a vicious bureaucratic cycle with even more complex fixes.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (DFA) was signed into law by President Obama on July 21, 2010. The DFA requires an unprecedented two- to five-year rulemaking process where roughly 250 new regulations need to be researched and written by at least a dozen regulatory agencies. Then, regulators are faced with a daunting task of implementing Dodd-Frank. To complicate matters, multiple regulators have joint jurisdiction over the same markets and products.
The DFA was passed in the wake of the 2008 financial crisis. It deals with regulating derivatives and swaps markets, consumer protection, bank bailouts, and numerous other issues. The complexity of the implementation is generating outcries of concern in the financial industry. What is needed is something much more practical understandable controls that banks can implement and that regulators can enforce. The cycle of comment letters and lobbying should cease. Wall Street and the regulators need to collaborate and create a workable solution of streamlined regulatory processes that address the spirit of the DFA guidelines.