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The Dodd-Frank Act


Like the Hydra of Greek myth, The Dodd-Frank Act that govern the banking industry, can produce new heads as needed.



Porbunderwalla Kersi
Porbunderwalla Kersi
The law that set up America's banking system in 1864 ran to 29 pages; the Federal Reserve Act of 1913 went to 32 pages; the Banking Act that transformed American finance after the Wall Street Crash, commonly known as the Glass-Steagall act, spread out to 37 pages. The latest act in this series is the Dodd-Frank Act which is 848 pages long.

Too much regulation can restrict the economy. Too few controls means that the financial institutions have another field day. Generally speaking, the reforms contained in Dodd-Frank are considered to be sufficient, while some parts look excessive because some parts go too far and some may even turn out to be inadequate and that there's another possibility that the new business rules may not be robust enough.

The scope and structure of Dodd-Frank (2010) are fundamentally different to those of its originating laws. Laws classically provide people with rules. Dodd-Frank is not directed at the processes and people in the financial services industry. The components of the act are essentially an outline that is directed at bureaucrats. It instructs them to make still more regulations and to create more bureaucracies as they go along with their supervision and controls.

However, the oversight authorities that will monitor the mighty monster has yet to finish implementing the various rules contained in the law, which in other words can also mean that the full scope of the oversight is not yet implemented.

SECTIONS 404 and 406 of the Dodd-Frank are just a couple of pages. Last year two of the agencies overseeing America's financial system turned those few pages into a form to be filled out by hedge funds and some other firms; that form ran to 192 pages.

The cost of filling the forms the first time is estimated to be $100,000-150,000. There is an obvious risk due to the enormous cost and complexity of the regulation. On the other hand the effects of the acts internal inconsistencies may outweigh any possible benefit may yet come from the regulation, unless the oversight authorities can manage to get their own act together.

The jury is still without a verdict if Dodd-Frank Act is capable of dealing with all of the complexities of the financial services industry. In fact what they are saying is that it is difficult to make a judgment whether it is too much or not enough, because they do not quite know what they are dealing with.

Some critics have argued that Dodd-Frank has yet to prove its capacity to adequately address the issue of too-big-to-fail banks or control the banks to separate commercial and investment funds. Until then the banks may continue to receive government bailouts in times of panic.

Source: Own research, The Economist, Marketplace, Wikipedia.

The Hydra was a terrifying monster with the body of a serpent and many heads (probably nine) of which one could never be harmed by any weapon. The stench from the Hydra's breath (venom) was enough to kill a man or beast. It totally terrorized the neighborhood for many years. It was Heracles that crushed Hydra with one mighty blow, tore off the head with his bare hands and quickly buried it deep in the ground, placing a enormous boulder on the top. After he had killed the Hydra, Heracles dipped the tips of his arrows into the Hydras' blood, which was highly toxic, making them perfect to eliminate the financial weapons of mass destruction.

Link to the brochure of the next Copenhagen Compliance Conference. www.copenhagencompliance.com/Brochure.pdf


Kersi Porbunderwalla is the founder and CEO of Riskability®, Copenhagen Compliance® and Copenhagen Charter®.
 
After his early retirement from ExxonMobil, Kersi has been involved in several Global Good Governance, Risk Management and Compliance (GRC) Projects for multinationals like IBM, Shell, BP, Volvo and others.
He continues to implement GRC journeys for a variety of clients to develop custom tailored GRC folder that includes methodologies, roadmaps, and specific solutions to assignments, training and certification.
Kersi conducts workshops, seminars and conferences that focus on developing and implementing GRC applications & frameworks into operational environments.
He is a consultant, instructor, researcher, commentator and practitioner on 4 continents.
 

Vendredi 19 Octobre 2012
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