The agencies have had a Goldilocks complex: they're trying to get the new regulatory system just right. "They know they are very much under a microscope and that they have to deliver," said Amy Friend, a managing director at Promontory Financial who worked for Sen. Chris Dodd while the law was being drafted. "That means they are going to be extra deliberate about what they're doing."
As the Dodd-Frank reform act heads into its second year, scores of rules that the law had mandated to be completed at this point are still unfinished. They include 121 rulemakings with pending proposals, and 19 rules that have not even been proposed, according to analysis by the law firm Davis Polk & Wardwell.
"The regulators were handed a monumental task" with "deadlines that were impossible and random," said Margaret Tahyar, a partner at law firm Davis Polk. "This was more than just filling in a few details. There were major components of the architecture that weren't there."
In the first 12 months following enactment, the regulators were able to check off projects with earlier deadlines, such as reforms to deposit insurance pricing and the closing of the Office of Thrift Supervision.
But more far-reaching provisions are still in limbo. Regulations to ban banks' proprietary trading, institute requirements for securitizers to retain risk and force lenders to ensure mortgage borrowers' ability to repay were all proposed, but none have been finalized. While the new Financial Stability Oversight Council has outlined its procedures for designating systemically important firms, no such firms have yet been designated. For some of the bigger regulations, such as the speculative trading ban known as the Volcker Rule, the regulators face pressure to meet the Dodd-Frank deadlines. But the lengthy proposal they issued on the rule, indicated their intent to methodically consider public concerns; almost to a fault.
Events like the multibillion-dollar trading loss at JPMorgan Chase's London unit, which prompted further debate about the scope of the Volcker Rule, also affected their work.
"This is a search for precision in terms of 'We are going to nail every possible thing in our rule so there is no uncertainty,'" said Karen Shaw Petrou, a managing partner at Federal Financial Analytics. "They are detailed-driven to the point of incoherence."
Deborah Bailey, a former deputy director of the banking supervision and regulation division at the Federal Reserve and now a director at Deloitte & Touche, said: "When Dodd-Frank was passed, it wasn't passed with a lot of input at all from the industry."
There have been other impediments to the regulators moving quickly. Different agencies that must collaborate on rules have competing priorities. Some regulators have dealt with holdups in Senate confirmation of senior positions, and then the eventual change of leadership after confirmation. Agencies are also dealing with fewer budgetary resources. Then there is the pressure from members of Congress and elsewhere for agencies to provide cost-benefit analyses for certain rulemakings.
However, some strides have been made. "When we look at where we were two years ago, we were really on the brink," said Cyrus Amir-Mokri, the assistant Treasury secretary for financial institutions. "Our banks didn't have enough capital. Our regulatory system was very fractured in that we didn't have any coordinating mechanisms. We didn't understand products. We didn't even have good documentation for a lot of these complex products that people were dealing with. All of that has changed."
Regulators also find themselves in a highly politicized environment — months before the presidential election. And, momentum for the Dodd-Frank reforms project simply may be on the decline two years later. "It was a year of nonactivity followed by a year of confusion," said Cornelius Hurley, director of the Morin Center for Banking and Financial Law at Boston University. "Enthusiasm for the project has waned."
Others said it would be a mistake to move too quickly. "The criticism of the regulators being too slow is totally unwarranted," said H. Rodgin Cohen, a partner at law firm Sullivan & Cromwell. "It should be in everybody's interest that they get it right and that takes time and effort because these are many, many complex issues. The regulators have been moving at an appropriate and measured pace. "
Rep. Barney Frank, D-Mass., the half-namesake of the reform law, agreed. "The deadlines were not firm in the sense they were basically approximations," he said. "Progress is going forward. I'm satisfied. The point is nothing has been undone, and nothing negative has happened because the regulations weren't in place."