The Federal Reserve faces a serious challenge in finishing and enforcing the bank regulations required by the 2010 Dodd-Frank financial reform law, the central bank’s inspector general is warning.
In a memo sent to Fed officials released Thursday, Inspector General Mark Bialek placed the implementation of a banking regulation framework atop the first list of major management challenges facing the central bank, which has taken on far-reaching regulatory powers as a result of the Dodd-Frank law.
Although the Fed has finished writing many of the major rules required by the law, the memo notes, “some rulemakings remain in the comment phase or have yet to be finalized.”
In particular, Bialek noted that the Fed has not finalized the rules meant to limit its own ability to extend emergency loans to troubled banks, a Dodd-Frank provision that outside critics have said the Fed needs to strengthen.
And once the rules are on the books, Bialek warned, the Fed will have a new challenge in make sure that they are actually followed.
The Fed “will face challenges as its focus shifts from rulemaking to interpreting the rules and ensuring compliance with recently issued regulations,” the memo states.
Doing so will require bank examiners and supervisors with the ability to make sure that the rules are being followed, which presents a human resources challenge.
“The [Fed] also faces challenges in attracting and retaining employees with the specialized subject-matter expertise necessary to execute its supervisory activities,” according to the inspector general.
Four years after the passage of Dodd-Frank, regulators are still phasing in some of its biggest provisions. Of the 280 passed deadlines for writing rules, 41 percent have been missed, according to law firm Davis Polk.
Over the past year, the Fed and other agencies have finalized some of the biggest rules relating to bank safety. Those include the Volcker Rule, which is meant to prevent banks from using depositors’ money for their own risky trading. They also include rules that require banks to fund themselves with a minimum level of equity rather than loans and that mandate that a certain share of their assets be in liquid securities that can be sold off for cash during a panic.
Top regulators such as Treasury Secretary Jack Lew have said that the new Dodd-Frank provisions give regulators the tools to prevent further bank failures that would necessitate taxpayer bailouts or threaten a recession. But many of the rules that have been finalized are still in the first iterations of being enforced.
