Agencies Conducted Required Regulatory Analysis and Reported Coordinating as Required on Dodd- Frank Act Rulemakings

In the Federal Register releases of the 26 Dodd-Frank Act rules that we  identified and reviewed, the issuing federal agencies conducted the  regulatory analyses required by RFA and PRA. The agencies also  addressed key elements in OMB’s Circular A-4 for six of the rules that  were identified to be major, that is, they resulted 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  or export markets. Community Banks and Credit Unions Cited a Cumulative Compliance Burden Associated with Dodd-Frank Act Rules

Representatives of community banks and credit unions and industry  associations with whom we spoke noted an increased compliance burden  associated with implementation of Dodd-Frank Act rules. The results of  surveys conducted by regulators, industry associations, and academics  on the impact of the Dodd-Frank Act on small banks suggest that there  have been moderate to minimal initial reductions in the availability of  credit among those responding to the various surveys, and regulatory  data to date have not confirmed a negative impact on mortgage lending. Representatives  from credit unions, community banks, and industry associations we  interviewed said several of these new rules have increased their overall  compliance burden—training staff, allocating time for regulatory  compliance matters, and updating compliance systems—and in some  cases, have begun to affect mortgage lending. However, the report also stated that the results here do not necessarily  rule out the possibility that effects may arise in the future. Regulators Face Challenges Determining the Cumulative Impact of Dodd-Frank Act Rules on Community Banks and Credit Unions

Regulators told us that it is still too early to assess the full impact of Dodd- Frank Act rulemakings on community banks and credit unions, and while  they have heard concerns about the increase in compliance burden, they  have not been able to quantify compliance costs. For  example, the indicators do not identify causal links between changes in  SIFI characteristics and the act. In this  regard, our indicators provide baselines against which to compare future  trends. Thus, the current values of our indicators are baselines  against which to compare future trends as more rules for designated  nonbanks are implemented. An increase in collateral as a  percentage of credit exposure suggests that holding companies have  required their counterparties to post a greater amount of collateral against  their credit exposure due to derivatives contracts overall, which would be  consistent with the purposes of the act’s swap reforms. Rather,  the set of indicators tracks changes in collateralization since the act’s  passage to examine if the changes were consistent with the act’s goals  for increasing collateralization. The  regulators also provided technical comments, which we have  incorporated, as appropriate. This report examines  regulatory analyses conducted by the federal financial regulators and  the Department of the Treasury (Treasury) in their Dodd-Frank Act  rulemakings, including their assessments of which rules they  considered to be major rules, and coordination between and among  federal regulators on these rulemakings; possible impact of promulgated Dodd-Frank Act provisions on  community banks and credit unions and their business activities; and possible impact of selected Dodd-Frank Act provisions and their  implementing regulations on financial market stability. To examine the regulatory analyses and coordination conducted by the  federal financial regulators and Treasury, we focused our analysis on the  final rules issued pursuant to the Dodd-Frank Act that became effective  from July 23, 2014, through July 22, 2015, a total of 26 rules (see app. We used the same data to construct indicators  associated with business lines that may be affected by Dodd-Frank Act  regulations, including residential mortgage lending as a percentage of  assets. As  such, we added new indicators associated with the size,  interconnectedness, leverage, and liquidity of these institutions. In addition, some rules implementing bank SIFI-related provisions have  not yet been finalized or fully implemented. Appendix VI: Econometric Analyses of the Impact of Enhanced Regulation and Oversight on Systemically Important Financial Institutions

We updated our econometric analysis assessing the impacts of new  requirements in the Dodd- Frank Wall Street Reform and Consumer  Protection Act (Dodd-Frank Act) for bank holding companies with total  consolidated assets of $50 billion or more—bank systemically important  financial institutions or bank SIFIs—as they relate to (1) the funding costs  for bank SIFIs and (2) indicators of their safety and soundness. We obtained these data from the  Federal Reserve Bank of Chicago and the Board of Governors of the  Federal Reserve System.
Why GAO Did This Study

The 2010 Dodd-Frank Act requires or authorizes various federal agencies to issue rules to implement reforms intended to strengthen the financial services industry. The act, as amended, includes a provision for GAO to annually study these regulations. This report examines (1) the regulatory analyses federal agencies conducted in Dodd-Frank Act rulemakings and interagency coordination in the rulemaking process; (2) the possible impact of selected Dodd-Frank Act provisions and related rules on community banks and credit unions; and (3) the possible impact of selected Dodd-Frank Act provisions and their implementing rules on financial market stability.
GAO reviewed Federal Register releases for 26 Dodd-Frank Act rules that became effective July 23, 2014-July 22, 2015 to determine if agencies conducted the required regulatory analyses and coordination. Separately, GAO examined nine Dodd-Frank Act rules that were effective as of October 2015 for their impact on community banks and credit unions. GAO chose these rules because regulators and others expected them to affect these institutions. GAO analyzed data on community banks and credit unions from 2010 to 2015, reviewed studies, and interviewed staff from federal financial agencies and market participants. Additionally, GAO developed indicators on the impact of systemic risk-related provisions and rules and conducted an economic analysis to assess the act's impact on large bank holding companies.
Regulators provided technical comments, which were incorporated as appropriate.

What GAO Found

Federal financial agencies conducted required regulatory analyses for rules issued pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) and also reported required coordination. These agencies also addressed key elements of Office of Management and Budget guidance for conducting cost-benefit analyses for rules considered major—rules likely to result in an annual impact on the economy of $100 million or more, among other things.
With regard to select Dodd-Frank Act rules expected to have impacts on community banks and credit unions, community banks, credit unions, and industry associations GAO interviewed cited an increase in compliance burden associated with these rules. This included increases in staff, training, and time allocation for regulatory compliance and updates to compliance systems. Some of these industry officials also reported a decline in specific business activities, such as loans that are not qualified mortgages, due to fear of litigation or not being able to sell those loans to secondary markets. The results of surveys we reviewed suggest that there have been moderate to minimal initial reductions in the availability of credit among those responding to the various surveys and regulatory data to date have not confirmed a negative impact on mortgage lending. However, these results do not necessarily rule out significant effects or the possibility that effects may arise in the future. Federal financial regulators are conducting retrospective analyses of Dodd-Frank Act rules on small entities. GAO developed indicators associated with resources used to comply with regulations and with business lines that may be affected by Dodd-Frank Act regulations to provide baselines against which to monitor future trends. For example, GAO's indicators suggest that residential mortgage loans as a fraction of assets have generally grown for banks of all sizes and for some smaller credit unions but have decreased for larger credit unions. However, changes in GAO's indicators may reflect factors other than the influence of Dodd-Frank Act rules, such as consumer demand for credit.
The full impact of the Dodd-Frank Act remains uncertain because many of its rules have yet to be implemented and insufficient time has passed to evaluate others. Using recently released data, GAO updated indicators from its prior reports that monitor key risk characteristics of large U.S. bank holding companies, and added new indicators that monitor interconnectedness. Although changes in the indicators are not evidence of causal links to the act's provisions, some indicators suggest companies' leverage generally decreased and liquidity generally improved since the act's passage. GAO's updated regression analysis suggests that the act has had little effect on the funding costs of these companies and may be associated with improvements in some measures of their safety and soundness. Indicators associated with the act's swap reforms suggest that holding companies have been requiring their counterparties to post a greater amount of collateral against derivatives contracts. GAO also developed indicators to monitor key risk characteristics of nonbank financial companies designated for supervision by the Board of Governors of the Federal Reserve System. Because few rules for these companies have been finalized or implemented, these indicators provide a baseline against which to monitor future trends.