Bloomberg News

Agencies Properly Evaluating Dodd-Frank Costs, Watchdogs Say

June 15, 2011

(Updates with report details starting in second paragraph.)

June 15 (Bloomberg) -- U.S. financial regulators have in general properly estimated the costs and benefits of new rules required under the Dodd-Frank Act, according to internal agency watchdogs.

The Federal Deposit Insurance Corp., Office of the Comptroller of the Currency, Securities and Exchange Commission and Federal Reserve have adequate procedures to estimate the costs of rules, such as new capital and margin requirements for the $601 trillion swaps market, the inspectors general concluded in reviews sought by Senate Republicans.

“We found that the FDIC assigned highly qualified subject matter experts to develop the technical aspects of the proposed rules and to conduct economic analysis, where appropriate,” the FDIC inspector general said in a report.

The reviews were requested by Republicans on the Senate Banking Committee who have raised concerns that financial regulators aren’t adequately estimating the costs of Dodd-Frank rules on the broader economy. The reports “highlight the fact that there are no uniform cost-benefit requirements,” Senator Mike Crapo, an Idaho Republican, said in a statement.

The SEC set up teams of officials with “sufficient expertise to conduct a comprehensive and thoughtful review,” H. David Kotz, the agency’s inspector general, said in a report that reviewed six recently proposed rules. One of the rules had “potential deficiencies,” and Kotz said he would pursue an additional review.

Quantitative Analysis

Kotz, who hired a finance professor from the University of Maryland to help conduct the oversight, said his review also noted a lack of quantitative analysis in a rule that would establish municipal advisers’ registration with the commission.

The Office of the Comptroller of the Currency, the national bank regulator that’s operated independently from inside the Treasury Department, was found to have “processes in place to ensure that required economic analysis are performed consistently and with rigor in connection to rulemaking authority,” Treasury Inspector General Eric Thorson wrote in his report.

The inspector general reviewed the same three rulemakings as the FDIC inspector general.

At the CFTC, lawyers had a “greater say” than economists in analyzing the economic impact of three rules proposed in January and February, according to the report prepared by the CFTC inspector general. The report echoed earlier conclusions from the agency watchdog that were released in April.

A fourth rule, published June 9, demonstrated an “evolution” in the economic analysis at the agency and economists had an “enhanced role” in the process, according to the inspector general.

“Overall we were impressed with the cost-benefit analysis included in this notice of proposed rulemaking,” the report concluded.

--Editors: Lawrence Roberts, Peter Eichenbaum

To contact the reporter on this story: Silla Brush in Washington at sbrush@bloomberg.net.

To contact the editor responsible for this story: Lawrence Roberts at lroberts13@bloomberg.net


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