Will Dodd-Frank Implode? Let’s Hope So

There have been a few interesting developments lately regarding legal interpretations of Dodd-Frank.  Unfortunately, media outlets are too busy covering trivial matters such as bathroom bills to focus on the impacts of this poorly-conceived legislation that has been in place since 2010.  However, the Wall Street Journal has not disappointed, covering some major developments in federal courts.

The most notable case challenges the Financial Stability Oversight Council that was created under Dodd-Frank. As noted in our NCPA publication, the FSOC has broad powers to impose additional reporting requirements and to audit firms they deem a threat to financial stability.  Firms designated as Systemically Important Financial Institutions (simply put, “too big to fail”) may not even necessarily be considered financial institutions as the public sees them.  Consider insurer MetLife, which the FSOC determined could pose a threat to the financial stability of the country.  MetLife sued the FSOC over their eligibility for this designation and the failure of the FSOC to explain the criteria for the designation.  U.S. District Judge Rosemary Collyer ruled that MetLife was a financial institution (as the firm indicated in its own filings) and thus was indeed eligible for SIFI designation.  However, she also issued a scathing opinion that the FSOC violated its own rules by designating MetLife as a threat to financial stability without undertaking an analysis to determine the likelihood of this occurring and how it would occur.  Furthermore, she ruled that the FSCO did not do a cost/benefit analysis.  Instead the FSOC focused on the benefits of said SIFI designation without regard to the new capital costs imposed on MetLife.  (Full opinion here.)

There are many other problems with the FSOC.  It is supposedly an “independent” 15-member committee, but eight out of its ten voting members are heads of government agencies, such as the Consumer Financial Protection Bureau and the Federal Housing Finance Agency. Only one person on the board is directly appointed by the president and must have insurance expertise and the other is the Chairman of the Federal Reserve.

Additonally, several Congress members have complained of the FSOC’s closed-door meetings with no published transcripts.  In 2014, the Government Accountability Office even released a report with recommendations to increase the FSOC’s transparency and accountability. But there are more reasons to just skip this step and scrap the FSOC altogether.



Comments (6)

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  1. rb says:

    Very interesting article though I would like to point out an error. The article stated “There are many other problems with the FSOC. It is supposedly an “independent” 15-member committee, but nine out of its ten voting members are government agency heads, such as directors or chairpersons of the Federal Reserve, Consumer Financial Protection Bureau…”
    The Federal Reserve, Consumer Financial Protection Bureau and the directors and chairpersons of the Federal Reserve are not government agency heads. The Federal Reserve is privately owned. Thus everyone who works for the Federal Reserve works for a private corporation. Unfortunately this truth fails to be spoken of enough. The Federal Reserve is not a government agency. So technically the 15 member council is loaded with private individuals. Just as it is planned.

    • LT. Robert Powell says:

      Technically, for the articles sake specifically, you are correct. For the sake of literary license, he is correct. The name Federal Reserve is to confuse the poor worker bees, as is the Consumer Financial Protection Bureau.
      as is Dodd-Frank as a supposed benefical bill. I suppose it is more like prosttitution, as the pimp controls the money. The prostitute is free to leave
      according to the ( rules ). Just as it is planned is a two way street.

  2. Pam says:

    You are correct, RB, the Federal Reserve is not a government agency per se. However, the Chairman of the Fed is appointed by the president, which is not characteristic of a private institution. The Consumer Financial Protection Bureau, is, in fact, a government agency (it states this on its own website), the director of the Federal Housing Finance Agency (again, an agency) is also on the Board, the Chairman of the National Credit Union Administration Board (an independent agency created by Congress), the U.S. Commodity Future Trading Commission (another independent agency), the FDIC (a U.S. government corporation not publicly funded but can get taxpayer funding through the Treasury), the Comptroller of the Currency (independent bureau of the Treasury, but the Comptroller is appointed by the president). In addition, there are state regulators that are non-voting members on the board.

    Thus, I would hardly call this a private sector board. Even if the appointees are “private individuals” that have been plucked out of the private sector, they are able to operate in a capacity of regulatory authority that is not afforded to a typical corporation board. Even the laws made by so-called “independent” agencies have the power of federal law.

    • LT. Robert Powell says:

      Thank you for your cogent article. Enlightening.

    • Keophus says:

      Sorry, I don’t get your point. You document the fact that the entire oversight here consists of unelected quasi government officials, at least one step removed from any elected office.

      They are making law. People who do not obey their diktats will be punished with the full force of the law.

      This is in clear violation of the constitution, which reserves that authority to elected representatives. Random individuals, even those appointed by the president, do not qualify.

      The fact that an organization has the word “Federal” in its name does not actually make it a branch of the federal government.

  3. Richard says:

    This is an insightful and timely article by NCPA.

    And the readers and the author of this article on Dodd-Frank would find the recent Independent Review article: “Dodd–Frank: Accretion of Power, Illusion of Reform,” by Professor Charlotte Twight (PhD economics and JD) to be well-worth reading. http://www.independent.org/publications/tir/article.asp?a=1081

    You can obtain the full PDF of the article by clicking below the brief Abstract on the site.

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