[ by Melanie Gretchen ]

'Bigger Is Always Better', according to kindergarten kids on an ATT commercial. Bigger isn't necessarily better when it comes to government reform.  Take the Dodd-Frank Reform Act, the sprawling, well-intentioned law that was intended to prevent the next credit crisis. 

Since its passage 2-1/2 years ago, this law may be causing more harm than good, when it comes to controlling the $650 trillion OTC swaps market. According to the U.S. Government Accountability Office, regulators have finished fewer than half of the new rules called for by the 2010 law.  Ant the U.S. financial/credit crisis, which ran from 2007 to 2009 has reached its 5-year anniversary, which is the age students usually attend kindergarten.  Hmmmm!

The problem: Is it in the Law or in the Execution?   Perhaps there are 'too many cooks' - which is another way of saying it's too big.  While the law may have changed the rules of the industry, it doesn't seem to have changed the industry itself.  Here are some of the challenges facing the changes being enacted by the law, again according to the GAO:

• the financial regulatory system remains fragmented
• time-consuming coordination among regulators has stalled its biggest reforms
• the complexity and interconnected nature of some required rules, as well as the coordination required for multiple agencies to agree on joint rules, have set regulators behind schedule
• the law didn't address the overlapping organizational chart of financial regulation, which includes numerous federal and state supervisors

Take Dodd-Frank's "Volcker Rule," as ...  a case in point.  It was supposed to take effect in 2 years after enactment - July 2012.  But the ban on proprietary trading has not been written by the 5 agencies responsible for the rule, namely:  the SEC, the Federal Reserve, the CFTC, the FDIC, and the OCC.  As a result, regulatory officials have not:

• ... spelled out how new U.S. rules for swaps trades would apply overseas.
• ... designated any non-bank financial firms for heightened supervision.
• ... implemented an international agreement requiring banks to hold more capital.

And some rule-making has been held up while certain regulators wait for other agencies to craft similar rules. The GAO further adds that certain regulations require coordination among agencies and numerous international regulators - a time-numbing effort.

SEC Chairman Elisse Walter defends her agency's efforts, saying that while implementation of Dodd-Frank has been a "major undertaking," the SEC has made considerable progress implementing the law.

[C-I Note: How many more years should we expect for the implementation of Dodd-Frank?  Barney Frank, who was co-sponsor of the Dodd–Frank Act, suggested that the SEC and CFTC merge?  Could that lead to less or more time for progress on Dodd-Frank?]

For further details, go to [Reuters, 1/23/13].