Requirements for Regulatory Analyses Vary, but Federal Financial Regulators Are Not Required to Conduct Benefit-Cost Analysis

As part of the rulemaking process, federal financial regulatory agencies  are required to conduct a variety of regulatory analyses, but benefit-cost  analysis is not among the requirements. In addition to these generic requirements, certain federal financial  regulators are required by their authorizing or other statutes to consider  specific benefits, costs, and impacts of their rulemaking. We reviewed 10 of the final rules that  allowed for some level of discretion on the part of the regulator. Federal Financial Regulators Have Informally Coordinated Their Rulemaking Efforts but Generally Lack Policies to Guide These Efforts

The Dodd-Frank Act requires or authorizes the federal financial regulators  to promulgate hundreds of rulemakings. Although federal financial regulators informally coordinated with each  other on some of the final rules that we reviewed, most of the regulators  lacked written policies and procedures to facilitate interagency  coordination. The Nature of FSOC’s Involvement in the Rulemaking Process Has Been Evolving

While FSOC continues to evolve and define its role, FSOC staff noted  that its organizational structure helps ensure coordination among its  member agencies. It Is Too Early to Determine the Impact of Dodd-Frank Act Regulations, but Opportunities for Future Analyses Exist

Federal financial regulators, industry association representatives, and  others told us that assessing the actual impact of the Dodd-Frank Act  regulations generally is premature for a number of reasons, including the  following:  Industry representatives and regulators noted that sufficient time has  not elapsed to allow for many of the Dodd-Frank Act rules to be fully  implemented and, in turn, assessed. Regulators Have Not Yet Developed Plans for Retrospective Reviews of Dodd-Frank Act Regulations

Federal financial regulators are required to conduct retrospective reviews  of their existing rules under various statutes and will include Dodd-Frank  Act rules in their future reviews. Although federal financial regulators  are not required to follow E.O. According to FSOC staff, FSOC would  not be able to make recommendations—for instance, to improve the  integrity, efficiency, competitiveness, and stability of the U.S. financial  markets—without considering the impact of the act and its regulations. GAO Is Developing a Framework for Future Impact Analyses

In response to our mandate to analyze the impact of regulations on the  financial marketplace, we have begun to construct an analytical  framework for doing so when practicable. While some regulators had  completed some of OMB’s recommended analyses, we also found  inconsistencies in the extent to which the analyses—and some  rulemaking policies—reflected OMB’s guidance. Similarly, under the Dodd-Frank Act, FSOC is also required to conduct  periodic studies. To strengthen the rigor and transparency of their regulatory analyses,  we recommend that the federal financial regulators take steps to  better ensure that the specific practices in OMB’s regulatory analysis  guidance are more fully incorporated into their rulemaking policies and  consistently applied. To enhance interagency coordination on regulations issued pursuant  to the Dodd-Frank Act, we recommend that FSOC work with the  federal financial regulatory agencies to establish formal coordination  policies that clarify issues such as when coordination should occur,  the process that will be used to solicit and address comments, and  what role FSOC should play in facilitating coordination. To effectively carry out its statutory responsibilities, we recommend  that FSOC direct the Office of Financial Research to work with its  members to identify and collect the data necessary to assess the  impact of the Dodd-Frank Act regulations on, among other things, the  stability, efficiency, and competitiveness of the U.S. financial markets. In their written comments, the regulators generally agreed with our  findings and conclusions, and some agreed with the recommendations,  while others neither agreed nor disagreed but stated actions they had  taken or planned to take regarding the recommendations. Appendix I: Scope and Methodology

Our objectives in this report were to examine (1) the regulatory analyses,  including benefit-cost analyses, federal financial regulators have  performed to assess the potential impact of selected final rules issued  pursuant to the Dodd-Frank Act; (2) how federal financial regulators  consulted with each other in implementing selected final rules issued  pursuant to the Dodd-Frank Act to avoid duplication or conflicts; and (3)  what is known about the impact of the final Dodd-Frank Act regulations. We also interviewed  officials from the Commodity Futures Trading Commission, Consumer  Financial Protection Bureau, Federal Deposit Insurance Corporation, the  Board of Governors of the Federal Reserve System, Financial Stability  Oversight Council, National Credit Union Administration, Office of the  Comptroller of the Currency, Office of Financial Research, OMB, and  Securities and Exchange Commission to determine the extent to which  benefit-cost or similar analyses were conducted and whether the  analyses were required by statute, regulation, or executive order. We reviewed the Federal Register releases for the 32 rules  effective as of July 21, 2011, to identify the impact or benefit-cost analysis  that the agencies conducted in connection with their rules.
Why GAO Did This Study

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) requires or authorizes various federal financial regulators to issue hundreds of rules to implement reforms intended to strengthen the financial services industry. GAO is required to annually study financial services regulations. This report examines (1) the regulatory analyses, including cost-benefit analyses, financial regulators have performed to assess the impact of selected final rules issued pursuant to the Dodd-Frank Act; (2) how financial regulators consulted with each other in implementing the selected final rules to avoid duplication or conflicts; and (3) what is known about the impact of the final rules. GAO examined the 32 final Dodd-Frank Act rules in effect as of July 21, 2011; the regulatory analyses conducted for 10 of the 32 rules that allowed for some level of agency discretion; statutes and executive orders requiring agencies to perform regulatory analysis; and studies on the impact of the Dodd-Frank Act. GAO also interviewed regulators, academics, and industry representatives..

What GAO Found

Federal financial regulators are required to conduct a variety of regulatory analyses, but the requirements vary and none of the regulators are required to conduct benefit-cost analysis. All financial regulators must analyze the paperwork burden imposed by their rules and consider the impact of their rules on small entities as part of their rulemaking process. The Commodity Futures Trading Commission and the Securities and Exchange Commission are also required under their authorizing statutes to consider certain benefits and costs of their rules. As independent regulatory agencies, the federal financial regulators are not subject to executive orders requiring federal agencies to conduct detailed benefit-cost analysis in accordance with a guidance issued by the Office of Management and Budget (OMB). Financial regulators are not required to follow OMB's guidance, but most told GAO that they attempt to follow the guidance in principle or spirit. GAO's review of regulators' rulemaking policies and 10 final rules found inconsistencies in the extent to which OMB's guidance was reflected.

What GAO Recommends

GAO recommends that to the extent the regulators strive to follow OMB's guidance, they should take steps to more fully incorporate the guidance into their rulemaking policies and ensure that it is consistently followed. Although federal financial regulators have coordinated their rulemaking, they generally lacked formal policies to guide these efforts. The Dodd-Frank Act establishes interagency coordination requirements for certain agencies and for specific rules or subject matters. However, for other rules, the regulators have discretion as to whether interagency coordination should occur. The Financial Stability Oversight Council (FSOC) is tasked with facilitating coordination among member agencies but, to date, has played a limited role in doing so beyond its own rulemakings as it continues to define its role. Several regulators voluntarily coordinated with each other on some of the rules GAO reviewed. However, most of the regulators, including the Bureau of Consumer Financial Protection, lacked written protocols for interagency coordination, a leading practice that GAO has previously identified for interagency coordination. GAO recommends that FSOC work with the financial regulators to develop such protocols for Dodd-Frank Act rulemaking. Little is known about the actual impact of the final Dodd-Frank Act rules, given the short amount of time the rules have been in effect. Regulators are required to conduct reviews of existing regulations to assess their impact, but some have not yet developed plans to review their Dodd-Frank Act rules. To maximize the usefulness of these reviews, GAO recommends that the regulators identify what data will be needed to retrospectively assess the impact of the rules in the future. FSOC is also required to examine, among other things, financial market and regulatory developments and make recommendations to enhance the efficiency, competitiveness, and stability of U.S. financial markets. Although FSOC officials said that FSOC plans to include an impact analysis of the Dodd-Frank Act rules in its future reports, it has not yet begun identifying and collecting the data needed for this type of analysis. GAO recommends that FSOC direct the Office of Financial Research, an entity created to support the research needs of FSOC, to work with the regulators to identify and begin collecting data needed for future analyses. GAO is making four recommendations to the regulators and FSOC to strengthen the prospective and retrospective analyses of the impact of Dodd-Frank Act regulations on financial markets and improve coordination among financial regulators on rulemaking. Regulators and FSOC generally agreed with the report's findings but most neither agreed nor disagreed with the report's recommendations.