Bedeviled by details
The Washington Post
This is an archived article that was published on sltrib.com in 2013, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.

Last Monday, President Barack Obama summoned top financial regulators to the White House and told them to get busy finishing implementation of the 2010 Dodd-Frank financial reform law. Obama's impatience is understandable.

Dodd-Frank is the centerpiece of his efforts to prevent another financial meltdown like the one in 2008. Yet as of July 15, regulators have finalized only 158 of 398 rules called for in the legislation, according to a law firm, Davis Polk, that tracks the process. Regulators have missed 172 of 279 rule-making deadlines, Davis Polk reports.

Why the delay? First, there's the sheer multiplicity of responsible federal agencies. A list of those represented at the president's meeting includes the Federal Reserve, Securities and Exchange Commission, Federal Deposit Insurance Corp. and National Credit Union Administration.

There was much talk of consolidating these turf-conscious bureaus at the time Congress was working on Dodd-Frank; the bill's failure to do so looks more unfortunate with each passing day. The byzantine process favors the banks, which have the motivation and the money to send lawyers and lobbyists into every bureaucratic cranny, doing their best to dilute and delay the impact of Dodd-Frank.

Yet Dodd-Frank presents genuinely difficult substantive issues that would have challenged the nimblest regulatory apparatus. Case in point: the Volcker Rule, the law's command that federally insured banks no longer engage in securities trading on their own account. Though not a major cause of the 2008 crash, such "proprietary trading," conducted with the funding advantage banks enjoy because of federal deposit insurance, is a potential source of instability.

The rule's namesake, former Federal Reserve chairman Paul Volcker, and others persuaded the framers of Dodd-Frank to limit commercial banks to taking deposits and making loans, leaving uninsured investment banks, hedge funds and private equity to handle riskier stuff with no expectation, implicit or otherwise, of a federal bailout.

Neat in theory, the Volcker Rule has proved hideously complex in rule-making practice. Among the line-drawing problems is distinguishing speculative bets from more mundane "market making," in which banks buy and sell securities as a go-between for clients.

Another sticking point: the scope of a proposed exception that would let banks trade ostensibly safe U.S. Treasury bonds and municipal bonds, so as to hold down marketing costs for federal, state and local governments. Foreign nations, notably Canada, protested the exception should cover their bonds, too.

If regulators can't write a proprietary trading definition that's sufficiently fine-grained and enforceable, perhaps they should draft a broad one, enforced by holding bank executives and boards personally accountable for compliance.