The Fairest Way To Implement Dodd-Frank

by Henry Meier

Without much fanfare, the OCC announced that it will grant two year exemptions to the nation’s seven largest banks from  a Dodd-Frank mandated requirement that large financial institutions “push out” their swap operations to non bank subsidiaries.  The idea behind the provision is that federal insurance guarantees shouldn’t be used to bail out investment banks that make bad bets on tricky derivatives.  We are told that the two year extension will facilitate the orderly implementation of this requirement.  Who wants to bet that Bank of America, Citibank et al will ever have to comply with this regulation?

Now, from what I have read on this subject there are strong arguments both for and against the provision, but frankly good and bad arguments can be made about all of the most contentious provisions of Dodd-Frank.

We are coming up on the third anniversary of its enactment and astoundingly only 38% of its provisions have been implemented.  It is becoming increasingly obvious that for the biggest and well-connected institutions — aka the institutions most responsible for necessitating financial reform in the first place — regulators will do everything they can to accommodate their wishes.  As the former Inspector General of the TARP program commented when hearing about the latest regulatory capitulation “regulators continue to kowtow to the financial interest of the largest banks rather than inconvenience them.”

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