From the U.S. Government Accountability Office, www.gao.gov Transcript for: Reviewing Agency Rulemaking under Dodd-Frank Act Description: Audio interview by GAO staff with Nikki Clowers, Director, Financial Markets and Community Investment Related GAO Work: GAO-13-101: Dodd-Frank Act: Agencies' Efforts to Analyze and Coordinate Their Rules Released: December 2012 [Background Music] [ Narrator: ] Welcome to GAO's Watchdog Report, your source for news and information from the U.S. Government Accountability Office. It's December 2012. Under the Dodd-Frank Act, federal agencies are charged with issuing hundreds of rules to implement reforms intended to strengthen the financial services industry. A group led by Nikki Clowers, a director in GAO's Financial Markets and Community Investment Team recently reviewed agencies' efforts to analyze and coordinate their rules. GAO's Jeremy Cluchey sat down with Nikki to talk about what they found. [ Jeremy Cluchey: ] Can you talk about the rulemaking requirements for federal agencies under the Dodd-Frank Act? [ Nikki Clowers: ] The Dodd-Frank Act introduced a number of reforms intended to strengthen the financial services industry. To implement those reforms, the regulators—the financial regulators such as SEC—are required to, or allowed to, issue hundreds of regulations to implement the reforms. Most of those regulations have not been finalized to date but there's concerns among the industry that the impact of the rules, either individually or collectively could be too great. So there's been a question about whether the benefits of the rules will outweigh the costs. [ Jeremy Cluchey: ] Your team looked in particular at some of the analyses that the agencies conducted around their rulemaking. Can you talk about that process and what you found? [ Nikki Clowers: ] Regulators are required to conduct a number of analyses to examine the potential implications of the rules and to inform their regulatory actions. And we found that the regulators have been conducting the required analyses. However, unlike financial other federal agencies, the financial regulators are not required to conduct cost-benefit analyses. So while they consider the benefits and cost of their rules, we found that they generally do not quantify or monetize those benefits and costs. And as a result, they miss an opportunity to better inform their decision-making. And also by not monetizing or quantifying those costs, make it more difficult to compare different regulatory alternatives. [ Jeremy Cluchey: ] With all these different rulemaking requirements, how do agencies try to avoid duplicating each other's efforts? [ Nikki Clowers: ] The act recognizes the importance of coordination and requires the regulators to coordinate in a number of ways through their rulemaking process. We found in looking at over 50 regulations that are finalized that the regulators coordinated on about a third of them. Most of that coordination took place at the staff level and was informal in nature. While informal coordination is good and can be appropriate for certain circumstances, we've recommended that they develop formal policies for interagency coordination to ensure that the coordination takes place, that it occurs at the right time, and that the right people are in the room. [ Jeremy Cluchey: ] Your team also took a look at the impact of these rules or what's known of that impact. What did you find there? [ Nikki Clowers: ] Most of the rules are not finalized or have not been in place long enough for sufficient time to determine the impact. Recognizing that limitation though, we started the process of developing a baseline so we could measure or assess the impacts of the regulations going forward. For example, we developed a series of indicators to measure changes in the characteristics of bank holding companies with assets of over $50 billion which are referred to as systemically important financial institutions. And what we plan to do is monitor how their characteristics change over time to see if they act as having its intended impact. So this year for example we report that the systemically important financial institutions have decreased their leverage and increased their liquidities since the act passed which is in line with what certain provisions of the act intended. We plan to update this analysis and expand it as we move forward to continue to monitor the impacts. [ Jeremy Cluchey: ] And finally for taxpayers interested in the effect of these efforts to reform the financial sector, what's the bottom line here? [ Nikki Clowers: ] Given the importance of the rulemaking and the potential impact of the rulemaking that the regulators are required to conduct under the act, it's important that they conduct them in the most transparent manner possible and use the most rigorous analyses to inform their decision-making. And also to allow the public to hold them accountable for the actions that they take. We will continue to monitor the regulators as they move forward with their rulemakings. [Background Music] [ Narrator: ] To learn more, visit GAO.gov and be sure to tune in to the next episode of GAO's Watchdog Report for more from the congressional Watchdog, the U.S. Government Accountability Office.