The Wall Street Reform and Consumer Protection Act of 2010–commonly known as the Dodd-Frank act–was a peculiar piece of legislation. It did not directly change financial rules or regulations; instead, it told financial regulators to write new rules in nearly 400 areas. Given that writing a regulation involves a legislatively-mandated process that includes rounds of mandatory feedback and cost-benefit calculations, it's eyebrow-raising but not especially shocking that six years after passage of the bill: “Of the 390 total rulemaking requirements, 274 (70.3%) have been met with finalized rules and rules have been proposed that would meet 36 (9.2%) more. Rules have not yet been proposed to meet 80 (20.5%) rulemaking requirements.”

As these hundreds of new regulations began to take effect, and to interact with each other and the real world, there was inevitably going to be a need for follow-up legislation. A Republican-backed bill called the Financial CHOICE Act passed through the House Financial Services Committee earlier this week. A group of faculty members at the New York University Stern School of Business and the School of Law have combined to publish an e-book called Regulating Wall Street: CHOICE Act vs. Dodd-Frank
, which offers a bunch of readable short essays on these topics.

My overall take is that although Dodd-Frank had some useful steps, it was most usefully interpreted as a cry by Democrats for “more regulation.” Conversely, the Financial CHOICE act is essentially pushback by Republicans for “less regulation.” Dodd-Frank is full of problems and missed opportunities, but the Financial CHOICE act, even if it is turns out to be amended in sensible ways, would leave behind additional problems while managing miss many of the same opportunities. US financial reform legislation doesn't offer much inspiration for ability of US legislators to see the bigger picture.

The “Introduction” by Thomas Cooley gives a useful overall perspective on the NYU volume:

The Dodd-Frank Act was not a fully formed set of rules or even a coherent new regulatory architecture for the United States. Rather it was an attempt to create some common mechanisms forcommunication and collaboration within the existing regulatory system through a newly created multi-agency organization—the Financial Stability Oversight Council (FSOC)—and a roadmap for rulemaking to address the obvious flaws in the system. It outlined a path for addressing the flaws in the existing regulatory architecture. The scope of Dodd-Frank is vast, covering everything from consumer financial protection to executive compensation in the financial sector, to the origins of “conflict minerals.” It outlined 390 rulemaking requirements, of which roughly 80% have been met. The resulting increase in regulatory complexity, compliance costs for financial institutions and coordination costs for the regulators has, not surprisingly, led to a backlash against the excesses of the Dodd-Frank regulations. …

Our early assessments of Dodd-Frank found much to criticize in the legislation, but we viewed it as an important step in the direction of making the financial system less risky. It was important because it correctly identified the overarching threat to financial stability and the root cause of the 2008 crisis as the accumulation of systemic risk—risk of collapse because of the interconnected financial risks— in the financial system. An objective of Dodd-Frank was to identify sources of systemic risk, identify systemically risky institutions, establish ways of monitoring systemic risk in the financial system, limit excessive risk-taking by financial institutions, and provide a roadmap for resolving insolvent institutions. To achieve these goals, Dodd-Frank created the FSOC to monitor systemic risk and identify “systemically important financial institutions” (SIFIs). …

With nearly seven years of additional perspective, the weaknesses are clearer. Dodd-Frank missed a golden opportunity to simplify and rationalize the very balkanized u.s. regulatory architecture, where responsibility is spread across many institutions, some with overlapping authority. Dodd-Frank did not sufficiently address the issue of the capital adequacy of financial institutions. Its proposals for the orderly liquidation of insolvent institutions were questionable. The proposed Volcker Rule was complicated and difficult to implement, and it became clear that proprietary trading and investing activities were not at the root of the financial crisis. Dodd-Frank did not address the problems of the Government-Sponsored Enterprises (GSEs) or housing finance. It did not address the problem of pricing government guarantees (deposit insurance, lender of last resort access, too-big-to-fail guarantees). It limited the lender of last resort (LOLR) authority of the Fed, constraining its ability to respond in a crisis. The result of the regulatory reform process that Dodd-Frank initiated, to date, has been a vastly more complicated regulatory structure that many doubt is adequate to forestall the next crisis and that some blame for the demise of many small community banks (institutions that are not viewed as part of the systemic problem) and a decline in bank lending.