Dodd-Frank Regulations: Agencies Conducted Regulatory Analyses and Coordinated but Could Benefit from Additional Guidance on Major Rules
What GAO Found
Federal agencies conducted the required regulatory analyses for all rules issued pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) that GAO identified and reviewed. However, the Office of Management and Budget (OMB), in coordination with the agencies, may not be consistently determining which rules are considered major rules under the Congressional Review Act (CRA). Under the act, Congress is allowed to review major rules before they become effective. The act outlines criteria for determining whether a rule is major, such as whether it will result in an annual effect on the economy of $100 million or more. OMB is responsible for determining which rules are major under CRA but relies on agency analyses to help make the determination. OMB guidance does not address whether independent agencies should submit all rules for review or how they should apply major rule criteria. GAO found that some independent agencies submitted all their rules to OMB, but others did not. GAO also found inconsistencies in how these agencies applied the CRA criteria. For example, GAO found rules issued by different agencies that had similar economic impacts but were not similarly classified as major. These issues raise the risk of some rules not being properly classified as major, limiting Congress's ability to review these rules before they become effective.
Federal regulators coordinated on 49 rulemakings pursuant to the Dodd-Frank Act or voluntarily. As required by the act, the Consumer Financial Protection Bureau (CFPB) established a framework to coordinate its supervision activities with prudential regulators and is establishing a similar framework to coordinate with state regulators. In May 2012, CFPB and prudential regulators entered into an agreement that specifies how they plan to meet the act's coordination requirements for the supervision of large banks (i.e., more than $10 billion in assets). CFPB has entered into similar agreements with state regulators to coordinate examinations of banks and nonbank financial entities.
The Dodd-Frank Act has not been fully implemented and its full impact remains uncertain. Using recently released data, GAO updated its prior report's indicators monitoring certain risk characteristics of large U.S. bank holding companies. Although changes in the indicators are not evidence of causal links to the act's provisions, some indicators suggest these companies, on average, have decreased their leverage and enhanced their liquidity since the act's passage. Moreover, GAO's updated regression analysis suggests that the act continued to have little effect on the funding costs of large U.S. bank holding companies but may have helped improve their safety and soundness. Based on its analysis of the act and market data, GAO also developed new indicators for this report to monitor the extent to which certain of the act's swap reforms are associated with their intended outcomes. These indicators establish baselines for measuring future changes. Finally, GAO examined federal financial regulators' plans to conduct retrospective reviews of their Dodd-Frank rules. Executive Order 13,579 asks independent agencies, including federal financial regulators, to develop plans to conduct retrospective reviews of existing rules that may be excessively burdensome or costly. Regulators have varied in their approaches and progress in developing and implementing such plans. Given the importance of such reviews, GAO recommended in 2011 that the regulators determine how they will measure the impact of Dodd-Frank regulations in their plans, but they have not done so to date. GAO maintains that doing so would position the regulators to make their future retrospective reviews as robust as possible.
Why GAO Did This Study
The 2010 Dodd-Frank Act requires or authorizes various federal agencies to issue hundreds of rules to implement reforms intended to strengthen the financial services industry. As amended by Public Law No. 112-10, the act also mandates that GAO annually study financial services regulations. This report examines (1) the regulatory analyses agencies conducted in their Dodd-Frank rulemakings; (2) interagency coordination on such rulemakings and by CFPB in its supervision activities; and (3) the possible impact of selected Dodd-Frank provisions and related rules and agency plans to assess Dodd-Frank Act rules retrospectively. GAO identified and reviewed 70 Dodd-Frank rules that became effective from July 24, 2012, through July 22, 2013, to determine whether the required regulatory analyses and coordination were conducted; examined CFPB's policies, procedures, and other materials; developed indicators on the impact of the act's systemic risk-related provisions and rules; conducted a regression analysis to assess the act's impact on large bank holding companies; and interviewed federal financial regulators and officials from the U.S. Department of the Treasury, the Financial Stability Oversight Council, and OMB.
GAO recommends that OMB issue guidance to help standardize CRA processes. OMB disagreed such guidance is needed, in part because GAO did not identify inconsistencies in major rule designations. GAO maintains that the identified process inconsistencies could lead to differing designations under CRA, and its recommendation helps ensure consistency in designating major rules.
Recommendations for Executive Action
|Office of Management and Budget||To help ensure that OMB, in consultation with federal financial regulators, consistently classifies Dodd-Frank rules as major under CRA, the Director of OMB, through the Administrator of the Office of Information and Regulatory Affairs, should issue additional guidance to help standardize processes for identifying major rules under CRA, including on the extent to which agencies should submit rules to OMB for review, such as whether agencies should submit only those rules their analyses indicate are major or all rules.||
In April 2019, OMB published the memorandum, M-19-14, "Guidance on Compliance with the Congressional Review Act," which provided additional guidance to agencies in order to help ensure more consistent compliance with CRA requirements. In July 2019, OMB staff explained how the memorandum satisfies the recommendation that OMB issue additional guidance for identifying major rules under CRA. This memorandum outlined a process by which federal financial regulators and other independent regulatory agencies--which are not subject to an executive order outlining requirements for executive branch agencies--should consult with OMB to determine whether upcoming rules may be major and should be submitted to OMB for review for a CRA determination.This guidance will help to provide greater assurance that independent agencies consistently submit rules that may be major rules to OMB for review.
|Office of Management and Budget||To help ensure that OMB, in consultation with federal financial regulators, consistently classifies Dodd-Frank rules as major under CRA, the Director of OMB, through the Administrator of the Office of Information and Regulatory Affairs, should issue additional guidance to help standardize processes for identifying major rules under CRA, including on how agencies should apply CRA's major rule criteria in their analyses, such as whether agencies should include indirect benefits or costs, combine benefits or costs of separate but related rules, or aggregate benefits or costs for jointly issued rules.||
In April 2019, OMB published the memorandum M-19-14, "Guidance on Compliance with the Congressional Review Act," which provided additional guidance to agencies in order to help ensure more consistent compliance with CRA requirements. In July 2019, OMB staff explained how this memorandum satisfies the recommendation that OMB issue additional guidance on how it should apply CRA's major rule criteria in their analyses. This memorandum reaffirms the broad applicability of CRA for all federal agencies and provides guidance for the types of analysis agencies should conduct to support OMB's determination of whether a rule is a major rule under the CRA. This OMB memorandum will help to provide greater assurance that federal financial regulators consistently apply the CRA criteria for OMB's determination of which rules are major rules.