New Wall St. Reform Bill Bullish on Bureaucracy

President Obama signed the 2,323-page, 243-rule Wall Street Reform act, otherwise known as the Dodd-Frank Wall Street Reform and Consumer Protection Act, into law today. It’s the biggest Wall Street reform since the Great Depression.

The new rules will take an estimated 2 years to fully implement, especially since much of the lawmaking has been left to regulators and the Fed. Here are some of the bill’s main points, cobbled together from media reports and the bill itself:

Too big to fail banks will from now on be dismantled using taxpayer money, which the bank (or pieces thereof) will pay back in the future by selling off assets.

Derivatives traders, including hedge funds and banks, will have to conduct trades through a clearinghouse, as well as keep more stringent records and file more reports. Some industries, like airlines, don’t have to use a clearinghouse as long as they hedge the risks they’re taking on with derivatives. The SEC and Commodity Futures Trading Commission have final say over who has to use the clearinghouse.

Regulators also have the power to create new rules for over-the-counter swaps. This process could take up to a year.

A new agency, the Consumer Financial Protection Bureau, will regulate mortgages, credit cards, payday lenders, and other consumer financial organizations. Obama promised that mortgages in particular will have simpler contracts, fewer fees, and fewer penalties. For lobbying reasons, the CFPB will not regulate car loans.

A new Federal Insurance Office will monitor systemic risk in the insurance industry, but otherwise, the bill doesn’t touch much on insurance. (Bankrate)

Golden parachutes will require shareholder approval.

Consultants and other government agencies will conduct a thorough examination of the SEC, including the revolving door (!).

The entire banking system will become more regulated and bureaucratic, through new bodies like the Financial Stability Oversight Council, Office of Financial Research, the Office of National Insurance, the Investor Advisory Committee, the Office of the Investor Advocate, the Office of Housing Counseling, etc.

Cost of the Reform Package: An estimated $19 billion. That includes $3 billion to help homeowners avoid foreclosure and $1 billion for local governments to buy foreclosed and abandoned properties, fix them up, and sell them to low- to moderate-income buyers. (MarketWatch)

One overarching theme that concerns me about this bill is the creation of a number of new regulatory agencies, as described above. I agree that Wall Street needs more regulation, but I’d like to have proof that these regulatory agencies are going to do their jobs (recall that an impotent Office of Thrift Supervision was charged with regulating AIG back in the day–and obviously did nothing).

The other thing about these new agencies is that they add new layers of bureaucracy, which inevitably slows everything down. The GOP is concerned about the US banking industry becoming less competitive; the bill, with its many new agencies, seems to support their point. I’d like to see a sleeker, more efficient government, not more bureaucratic slop. We have enough of that already.