The costs of Dodd-Frank? Even the Feds don’t know

The best guesses range from $1.8 billion for commodities traders to more than $1 trillion (according to the International Swaps Dealers Association) in broader economic costs. Based on the major rules issued by eight different agencies thus far only 22 of 116 included quantifiable cost estimates, according to American Action Forum research. 

But to some, costs are of no concern no matter how quickly they escalate, or how they impact employment and economic growth. Ardent supporters of the law, most notably Representative Barney Frank (D-Mass.) and Senator Richard Durbin (D-Ill.), stress that the benefits of Dodd-Frank (averting the next financial collapse) far outweigh the compliance costs. 

But that begs the question, what exactly are the costs? No one can provide a concrete number, and a recent CFTC Inspector General (IG) report reveals the administration wants to keep it that way. 

The IG found that frequent attempts to quantify costs by the chief economist at CFTC were scuttled, to no one’s surprise, by lawyers within the Office of General Counsel. On one occasion a “dispute” arose between the two offices when the chief economist undertook a comprehensive cost-benefit analysis. The general counsel soon vetoed the idea and suggested litigation could result. But as the IG report documented, there hasn’t been a single lawsuit over cost-benefit analyses at CFTC.

Even for an IG the conclusions were harshly critical of the politicized process that routinely hid quantified cost-benefit analyses. As the report concluded, “We were also troubled at the lack of available (and verified) data pertaining to compliance costs borne by the industry, at least at the proposed rulemaking stage.” 

Outside attempts at quantifying the costs are helpful, but many were performed before implementation. Figures of $1.8 billion or $1 trillion might work to garner support for the legislative curtailment of Dodd-Frank, but the sad truth is the actual costs will probably be revealed in the coming years through depressed employment reports, reduced profit margins and higher burdens for businesses forced to comply with the flood of new rules. 

Based on the regulations that the administration has publicly released, Dodd-Frank has produced at least $866 million in direct compliance costs for the financial industry. As the IG report demonstrated, CFTC didn’t do its part, producing only four quantified cost estimates out of 55 major rules.

If CFTC could produce four, why not 55?

The SEC on the other hand, has a more respectable record, publishing 15 quantifiable cost estimates from a total of 30 major Dodd-Frank rulemakings. The most expensive of which is a $245 million proposed rule that would implement a “security-based swap data repository registration.” 

The lack of transparency and multiple attempts to hide the true costs of Dodd-Frank underscores an endemic trait in the Obama Administration. For example, EPA routinely counts the cost of hiring new workers to comply with onerous regulations as beneficial for the economy, and who can forget the budgetary jujitsu that took place in order to game the health care cost estimate?

If the administration wants to fundamentally transform the nation’s healthcare, financial, and environmental laws, shouldn’t taxpayers and businesses have some idea of what it will cost? 

Without accurate estimates, Dodd-Frank implementation could do its worst damage without any serious public scrutiny. The true effects will be felt on earnings reports, employment figures and onerous compliance costs for businesses.

The federal government might be clueless on a host of issues, but the costs of fundamental financial reform should not be one of them.  

Sam Batkins is the Director – Regulatory Issues at the American Action Forum.