I have been laboring in the fields of banking law and regulation for more than 45 years and have made some observations along the way. First and foremost, banking is overregulated. The problem goes way beyond what Congress did with the Dodd-Frank Act.
Bankers have complained about the regulatory burden since long before financial crisis. The savings and loan crisis in the '80s and '90s resulted in an avalanche of rules and regulations. Banking regulation today is far more pervasive than it was back then.
And yet, the proposed solutions for dealing with the regulatory burden tend to be not much better than the unnecessary laws and rules enacted in the first place. Efforts at regulatory “reform” and regulatory “relief” often ignore the source of what led to the overregulation in the first place: Congress.
Let’s start with the regulatory response to the 2008 crisis. Some advocates of bank deregulation believe the solution to the regulatory pendulum being out of balance is to repeal Dodd-Frank.
To be clear, some of Dodd-Frank’s provisions should be repealed. For example, some of its amendments to the Truth in Lending Act add unnecessarily to the regulatory burden, especially with respect to residential mortgage transactions. The TILA law, as originally enacted made sense and was clear and understandable, but multiple amendments over the years have added needless complexity.
But relying on a Dodd-Frank repeal has immediate problems. First, it is unlikely to happen given the political breakdown of Congress right now, and No. 2, even if Congress were able to repeal the 2010 law, that would still not address the unnecessary regulatory burden that had been disrupting banking before the 2008 crisis.
Meanwhile, the Trump administration has tried to address the regulatory burden independently of any Dodd-Frank repeal efforts with executive orders intended to lean on the regulatory agencies to roll back policies through their implementing authority. But these executive orders overlook the deliberative nature of the regulatory agencies’ rulemaking process.
Among the steps that the administration has called for are having the regulatory agencies repeal two existing rules for every new rule issued. But that is simplistic and reveals a lack of understanding of how regulations are normally created and repealed. Similarly, President Trump’s call for agencies to create a task force to identify unnecessary regulations did not include the criteria to be followed for making such determinations.
In the real world, the regulatory agencies actually abide by a process intended to apply some measure of caution, the consideration of outside expert opinions and open debate about rulemakings. An agency proposing to enact or repeal a rule or regulation must comply with the requirements of the federal Administrative Procedure Act, which requires publication of notice of the proposal in the Federal Register and providing an opportunity for the general public to comment.
This process tends to be extended. While it hampers the regulators’ ability to act quickly — and would likely complicate efforts to start suddenly repealing Dodd-Frank-era rules — the APA at least acts as a defense against hasty and uninformed action on the part of the regulators.
A similar model should be imposed on the lawmakers who write the laws that the regulators must implement. Regulators do not create rules out of thin air. They get their marching orders from Congress.
Congress would do well to require a more deliberative process when enacting legislation, perhaps in the form of a Legislative Procedure Act, along the lines of the APA. Under current rules, some proposed bills may be debated by the full chambers of Congress and some must be voted upon without any prior debate. Regardless, since most members of Congress lack expertise on the issues giving rise to the proposed legislation, their debates involve the blind leading the blind. They wind up being about competing ideologies rather than substantive issues.
Providing the general public with an opportunity to comment on pending legislation — and requiring lawmakers to review those comments — would allow experts to weigh in on the merits of the legislation under consideration. Congress should also be required to reveal how the need for the legislation was determined. Was it based on empirical evidence or merely pressure from a special-interest group or groups?
The established processes for repealing regulations makes it impossible to repeal them en masse, in one fell swoop. At least the APA provides the opportunity through public comment for bankers to be consulted about which regulations should be enacted or repealed.
Congress needs to incorporate a similar process when it passes laws.