7 U.S.C. Agencies Conducted Required Regulatory Analyses but May Not Be Identifying All Major Rules

In the Federal Register releases of the 59 Dodd-Frank rules that we  identified and reviewed, the issuing federal agencies stated that they  conducted the regulatory analyses required by various federal statutes.As independent regulatory agencies, the federal financial regulators— CFPB, CFTC, FDIC, the Federal Reserve, OCC, NCUA, and SEC—are  not subject to executive orders that require comprehensive benefit-cost  analysis in accordance with guidance issued by OMB. Under CRA, OMB  is responsible for determining which rules are major but relies on agency  analyses to help make the determination. Regulators Continue to Coordinate on Rulemakings

Federal agencies coordinated on 49 of the 70 Dodd-Frank regulations  that we reviewed, as required by the act or voluntarily. CFPB Has a Framework to Coordinate with Prudential Regulators and Is Establishing One with State Regulators

Under the Dodd-Frank Act, CFPB is authorized to supervise insured  depository institutions and credit unions with more than $10 billion in  assets (large banks) and their affiliates, and nonbank financial service  providers (nonbanks). CFPB  has established a framework to comply with Dodd-Frank’s requirements  to coordinate supervision with prudential regulators and is establishing a  similar framework to comply with the act’s coordination requirements with  state regulators. Impacts of the Dodd- Frank Act Are Uncertain, and Regulators Are Developing Plans to Review Rules Retrospectively

Federal financial regulators are continuing to implement reforms pursuant  to the Dodd-Frank Act, but the full impact of the act remains uncertain. Third, we developed indicators to monitor the extent to  which certain of the Dodd-Frank Act’s swap reforms are consistent with  the act’s goals of reducing risk. Finally,  we assessed agencies’ plans to conduct retrospective reviews of their  existing rules. Importantly, these indicators have several key limitations. Regulators Vary in Their Approaches and Progress in Developing Retrospective Review Plans

Federal financial regulators vary in their approaches and progress in  developing and implementing plans to conduct retrospective reviews of  their existing Dodd-Frank and other rules in recognition of Executive  Order 13,579 (E.O. In that regard, we  recommended in our prior report that the federal financial regulators  develop plans that determine how they will measure the impact of Dodd- Frank regulations—for example, determining how and when to collect,  analyze, and report needed data. To date, regulators have not  implemented our recommendation. We maintain that doing so would  position them to make their future retrospective reviews as robust as  possible. OMB  provided guidance on implementing CRA in 1999, but such guidance  does not establish standardized processes for submitting rules to OMB  for its review or applying CRA’s criteria. These inconsistent processes could lead to the  inconsistent classification of some rules. Recommendations for Executive Action

To help ensure that OMB, in consultation with federal financial regulators,  consistently classifies Dodd-Frank rules as major under CRA, we  recommend that the Director of OMB, through the Administrator of the  Office of Information and Regulatory Affairs, issue additional guidance to  help standardize processes for identifying major rules under CRA,  including on (1) 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, and (2) 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. Appendix I: Objectives, Scope, and Methodology

This report examines rulemaking under the Dodd-Frank Wall Street  Reform and Consumer Protection Act of 2010 (Dodd-Frank Act). More  specifically, we examined (1) the regulatory analysis conducted by federal  agencies in their Dodd-Frank rulemakings, including their assessments of  which rules they considered to be major rules under the Congressional  Review Act (CRA); (2) interagency coordination by the agencies in their  Dodd-Frank rulemakings and by the Consumer Financial Protection  Bureau (CFPB) with other agencies in connection to its supervision of  large banks and certain nonbank financial service providers; and (3)  possible impact of selected Dodd-Frank provisions and their  implementing regulations and agency plans to assess such regulations  retrospectively. To examine the regulatory analyses and coordination conducted by the  regulators, we focused our analysis on final rules issued pursuant to the  Dodd-Frank Act that became effective from July 24, 2012, through July  22, 2013, a total of 70 rules (see app. Using GAO’s  Federal Rules database we found that 10 of the 59 rules were classified  by the Office of Management and Budget (OMB), in consultation with the  rulemaking agencies, as major rules under CRA (that is, have resulted in  or are likely to result in an annual impact on the economy of $100 million  or more, a major increase in costs or prices, or significant adverse effects  on competition, employment, investment, productivity, innovation, or on  the ability of U.S.-based enterprises to compete with foreign-based  enterprises in domestic and export markets). Although changes in our indicators may be suggestive of the act’s impact  on the swaps market, the indicators have a number of limitations,  including that they do not identify causal linkages between the act and  changes in the indicators. Funding cost. Our baseline estimates also suggest that the Dodd-Frank Act is  associated with improvements in most measures of U.S. bank SIFIs’  safety and soundness.
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.

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.

What GAO Recommends

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.