While expectedly unmemorable and policy-focused, the President's State of the Union address included a resolution to decrease unnecessary regulatory burdens on businesses.
The US has a long history of adding regulation and acronyms, not removing them.
Dodd-Frank may ultimately provide some useful clarity, but it's also likely to raise more questions and increase regulatory costs to financial firms.
If the President truly means what he said, he need look no further than some of the rules already on the books.
The State of the Union is an evening in the grand tradition of American politics (i.e., lots of pomp, little substance). It brings all three branches of the federal government together and provides a fair few photo ops—and the chance to watch potential policy unfold. The speech itself is almost always fairly unmemorable. It's a policy speech with occasional theatrical flair, not campaign rhetoric—and this year was no exception. Still, one thing President Obama said Tuesday night stood out to us: He resolved to reject rules that unnecessarily burden businesses and to eliminate overlapping regulators. He made a similar point in his recent Wall Street Journal op-ed. As fans of freer markets, this was music to our ears—but it's important to pay attention to what politicians do, not what they say.
The US has a long and storied history of adding regulatory acronyms (OTS, OCC, SEC, FDIC, SIPC, XYZ—okay, we made that last one up) but almost no tradition of reducing them. Consider the many Depression-era laws still with us in one form or another. The Tariff Act of 1930, otherwise known as (Anyone? Anyone? That's right,) the Smoot-Hawley Tariff—widely regarded as one of the most disastrous regulations ever passed—is technically still on the books. And though Gramm-Leach-Bliley was celebrated as a deregulatory measure overturning 1933's Glass-Steagall Act, realistically, it subjected financial institutions to oversight by myriad new regulators—hardly a step in the less-burdensome direction.
Now, add to that the Dodd-Frank Wall Street Reform and Consumer Protection Act, which introduces a new alphabet soup of financial regulation-related acronyms and overhauls some agencies already in existence. Resulting from the Act's plentiful mandates, the SEC is now proposing new net worth standards for accredited investors and one on "say on pay." Not to mention there are more agencies coming, pending funding and further clarification on implementation.
While the US has increasingly complicated the financial regulatory landscape and changed some rules of the game, the UK has pursued an appealing alternative: consolidation. In June 2010, the Bank of England absorbed the Financial Services Authority (FSA), simplifying the regulatory structure. And though recently expanded and formalized in the wake of the 2008 financial collapse, the European Union operates under a fairly simple system as well.
As the dust settles, Dodd-Frank may provide some useful regulation and clarity in previously gray areas. But as we've discussed, it's also likely to raise more questions than provide answers in others. Not only that, but it may introduce incentives to compete in seemingly unproductive ways. And the kicker? The very firms facing possible additional regulatory burdens will also likely foot the bill for the new watchdog agencies.
We're all for sensible regulations that protect consumers and lay the ground rules for fair dealings. But if the President truly means what he said about lightening unnecessary burdens on businesses through reasoned, uncomplicated regulation, perhaps a good place to start would be re-examining the implications of rules already on the books. We shan't hold our breaths.