DODD-FRANK ACT

Agencies’ Efforts to 

Analyze and 

Coordinate Their 

Rules

Report to Congressional Addressees

December 2012

GAO-13-101

United States Government Accountability Office

GAO
United States Government Accountability Office

Highlights of GAO-13-101, a report to 

congressional addressees

December 2012

DODD-FRANK ACT 

Agencies’ Efforts to Analyze and Coordinate Their 

Rules 

Why GAO Did This Study

The Dodd-Frank Act requires or 

authorizes various federal agencies 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 

federal agencies performed for rules 

issued pursuant to the Dodd-Frank Act; 

(2) how the agencies consulted with 

each other in implementing the final 

rules to avoid duplication or conflicts; 

and (3) what is known about the impact 

of the Dodd-Frank Act rules. GAO 

identified 66 final Dodd-Frank Act rules 

in effect between July 21, 2011, and 

July 23, 2012. GAO examined the 

regulatory analyses for the 54 

regulations that were substantive and 

thus required regulatory analyses; 

conducted case studies on the 

regulatory analyses for 4 of the 19 

major rules; conducted case studies on 

interagency coordination for 3 other 

rules; and developed indicators to 

assess the impact of the act’s systemic 

risk provisions and regulations. 

What GAO Recommends

GAO is not making new

recommendations in this report but 

reiterates its 2011 recommendations 

that the federal financial regulators 

more fully incorporate OMB’s guidance 

into their rulemaking policies and that 

FSOC work with federal financial 

regulators to establish formal 

interagency coordination policies for 

rulemaking. The agencies provided 

written and technical comments on a 

draft of this report, and neither agreed 

nor disagreed with the report’s 

findings.

What GAO Found

Federal agencies conducted the regulatory analyses required by various federal 

statutes for all 54 regulations issued pursuant to the Dodd-Frank Wall Street 

Reform and Consumer Protection Act (Dodd-Frank Act) that GAO reviewed. As 

part of their analyses, the agencies generally considered, but typically did not 

quantify or monetize, the benefits and costs of these rules. Most of the federal 

financial regulators, as independent regulatory agencies, are not subject to 

executive orders that require comprehensive benefit-cost analysis in accordance 

with guidance issued by the Office of Management and Budget (OMB). Although 

most financial regulators are not required to follow OMB’s guidance, they told 

GAO that they attempt to follow it in principle or spirit. GAO’s review of selected 

rules found that regulators did not consistently follow key elements of the OMB 

guidance in their regulatory analyses. For example, while some regulators

identified the benefits and costs of their chosen regulatory approach in proposed 

rules, they did not evaluate their chosen approach compared to the benefits and 

costs of alternative approaches. GAO previously recommended that regulators 

more fully incorporate the OMB guidance into their rulemaking policies, and the 

Office of Comptroller of the Currency and the Securities and Exchange 

Commission have done so. By not more closely following OMB’s guidance, other 

financial regulators continue to miss an opportunity to improve their analyses.

Federal financial agencies continue to coordinate on rulemakings informally in 

order to reduce duplication and overlap in regulations and for other purposes, but 

interagency coordination does not necessarily eliminate the potential for 

differences in related rules. Agencies coordinated on 19 of the 54 substantive 

regulations that GAO reviewed. For most of the 19 regulations, the Dodd-Frank 

Act required the agencies to coordinate, but agencies also voluntarily 

coordinated with other U.S. and international regulators on some of their 

rulemakings. According to the regulators, most interagency coordination is 

informal and conducted at the staff level. GAO’s review of selected rules shows 

that differences between related rules may remain even when coordination 

occurs. According to regulators, such differences may result from differences in 

their jurisdictions or the markets. Finally, the Financial Stability Oversight Council 

(FSOC) has not yet implemented GAO’s previous recommendation to work with

regulators to establish formal interagency coordination policies. 

Most Dodd-Frank Act regulations have not been finalized or in place for sufficient 

time for their full impacts to materialize. Recognizing these and other limitations, 

GAO took a multipronged approach to assess the impact of some of the act’s 

provisions and rules, with an initial focus on the act’s systemic risk goals. First, 

GAO developed indicators to monitor changes in certain characteristics of U.S. 

bank holding companies subject to enhanced prudential regulation under the 

Dodd-Frank Act (U.S. bank SIFIs). Although the indicators do not identify causal 

links between their changes and the act—and many other factors can affect 

SIFIs—some indicators suggest that since 2010 U.S. bank SIFIs, on average,

have decreased their leverage and enhanced their liquidity. Second, empirical 

results of GAO’s regression analysis suggest that, to date, the act may have had 

little effect on U.S. bank SIFIs’ funding costs but may have helped improve their

safety and soundness. GAO plans to update its analyses in future reports, 

including adding indicators for other Dodd-Frank Act provisions and regulations.

View GAO-13-101. For more information, 

contact A. Nicole Clowers at (202) 512-8678 

or clowersa@gao.gov
Page i GAO-13-101 Dodd-Frank Act Regulations

Letter 1 

Background 6

Regulatory Analyses Provide Limited Information about Benefits 

and Costs of Chosen or Alternative Approaches 10

Regulators Continue to Coordinate Informally on Rulemakings, but 

Differences among Related Rules Still Exist 22

Impacts of the Dodd-Frank Act Have Not Yet Fully Materialized 

and Remain Uncertain 32

Agency Comments and Our Evaluation 70

Appendix I Scope and Methodology 74

Appendix II Tables Listing Dodd-Frank Act Rules Effective as of 

July 23, 2012 79

Appendix III Summary of Rulemakings Related to the Dodd-Frank Act 

Provisions Applicable to Systemically Important Financial 

Institutions 88

Appendix IV Econometric Analyses of the Impact of Enhanced Regulation 

and Oversight on SIFIs 91

Appendix V Impact Analysis of the Debit Card Interchange Fees and 

Routing Rule 99

Appendix VI Econometric Analysis of the Impact the Debit Interchange 

Fee Standard on Issuer Banks’ Income 111

Appendix VII Comments from the Securities and Exchange Commission 116

Contents 
Page ii GAO-13-101 Dodd-Frank Act Regulations

Appendix VIII Comments from the Department of the Treasury 118

Appendix IX GAO Contact and Staff Acknowledgments 119

Tables

Table 1: Prudential Regulators and Their Basic Functions 6

Table 2: Summary of Four Major Rules Reviewed 15

Table 3: Documentation of Coordination in Releases of DoddFrank Regulations, July 21, 2011 through July 23, 2012 25

Table 4: Summary of Three Major Rules Reviewed 27

Table 5: Summary of Trends in Indicators for U.S. Bank SIFIs, from 

Third Quarter 2010 through Second Quarter 2012 36

Table 6: Number and Median Size of U.S. Bank Holding Companies 

and U.S. Bank SIFIs, at the End of Calendar Year Unless 

Otherwise Noted (Assets in Billions of 2012 Q2 Dollars) 40

Table 7: Foreign Legal Entities of Large U.S. Bank SIFIs, as of 

October 22, 2012 45

Table 8: Estimated Changes in U.S. Bank SIFIs’ Funding Cost and 

Measures of Safety and Soundness Associated with the 

Dodd-Frank Act, from Third Quarter 2010 through Second 

Quarter 2012 56

Table 9: Public Companies’ Say-on-Pay Proposals, from 2007 

through June 25, 2012 69

Table 10: Dodd-Frank Act Rules Effective between July 21, 2011, 

and July 23, 2012 79

Table 11: Dodd-Frank Act Rules Effective as of July 21, 2011 85

Table 12: Rulemakings Implementing the Dodd-Frank Act 

Provisions Applicable to Systemically Important Financial 

Institutions and Their Status as of October 12, 2012 88

Table 13: Estimated Impacts of the Dodd-Frank Act on Bank SIFIs, 

from Third Quarter of 2010 through Second Quarter of 

2012 (percentage points) 96

Table 14: Estimated Impact of the Debit Interchange Fee Standard 

on Covered Banks, from Fourth Quarter of 2011 through 

Second Quarter of 2012 (percentage points) 113
Page iii GAO-13-101 Dodd-Frank Act Regulations

Figures

Figure 1: Total Assets of U.S. Bank SIFIs, as of the Third Quarter of 

2010 and Second Quarter of 2012 39

Figure 2: Median Market Share for U.S. Bank Holding Companies 

by Size, from First Quarter of 2006 through Second 

Quarter of 2012 41

Figure 3: Total Legal Entities of U.S. Bank SIFIs, as of October 23, 

2012 44

Figure 4: Median Tangible Common Equity as a Percent of Total 

Assets for U.S. Bank Holding Companies by Size, from 

First Quarter of 2006 through Second Quarter of 2012 48

Figure 5: Median Tangible Common Equity as a Percent of RiskWeighted Assets for U.S. Bank Holding Companies by 

Size, from First Quarter of 2006 through Second Quarter 

of 2012 49

Figure 6: Median Short-Term Liabilities as a Percent of Total 

Liabilities for U.S. Bank Holding Companies by Size, from 

First Quarter of 2006 through Second Quarter of 2012 52

Figure 7: Median Liquid Assets as a Percent of Short-term 

Liabilities for U.S. Bank Holding Companies by Size, from 

First Quarter of 2006 through Second Quarter of 2012 53

Figure 8: Annual and Quarterly U.S. ABS Issuance, from 2000 

through Second Quarter of 2012 65

Figure 9: Annual and Quarterly U.S. ABS Issuance Excluding 

Agency Mortgage-Related ABS, from 2000 through Second 

Quarter of 2012 66
Page iv GAO-13-101 Dodd-Frank Act Regulations

Abbreviations

APA Administrative Procedure Act

ABS asset-backed security

CCAR Comprehensive Capital and Analysis Review

CFPB Consumer Financial Protection Bureau

CFTC Commodity Futures Trading Commission

CRA Congressional Review Act

DCI data collection instrument

EFTA Electronic Fund Transfer Act

EO Executive Order

FDIC Federal Deposit Insurance Corporation

FSB Financial Stability Board

FSOC Financial Stability Oversight Council

GDP gross domestic product

G-SIB globally systemically important bank

NCUA National Credit Union Administration

OCC Office of the Comptroller of the Currency

OMB Office of Management and Budget

OFR Office of Financial Research

PIN personal identification number

PRA Paperwork Reduction Act

RFA Regulatory Flexibility Act

SCAP Supervisory Capital Assessment Program

SEC Securities and Exchange Commission

SIFI systematically important financial institutions

SRO self-regulatory organization

TARP Troubled Asset Relief Program

TSR total absolute shareholder return

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Page 1 GAO-13-101 Dodd-Frank Act Regulations

United States Government Accountability Office

Washington, DC 20548

December 18, 2012

Congressional Addressees

The 2007-2009 financial crisis created major disruptions in significant 

parts of the U.S. financial system and threatened the solvency of some 

large financial institutions, prompting the federal government to take 

extraordinary steps to moderate the adverse economic impacts. In 

response to the crisis, Congress passed the Dodd-Frank Wall Street 

Reform and Consumer Protection Act (Dodd-Frank Act) in 2010, which 

includes numerous reforms to strengthen oversight of financial services 

firms and consolidate certain consumer protection responsibilities in the 

Bureau of Consumer Financial Protection, commonly known as the 

Consumer Financial Protection Bureau (CFPB).1

Agencies can anticipate and evaluate the consequences of their 

regulations through regulatory analysis, which provides a formal way of 

organizing evidence that can help in understanding potential effects of 

new regulations. Benefit-cost analysis, the primary tool used for 

regulatory analysis, helps to identify the regulatory alternatives with the 

greatest net benefits. We, along with the Office of Management and 

Budget (OMB) and others, have identified benefit-cost analysis as a 

useful tool that can inform decision making. The systematic process of 

determining benefits and costs helps decision makers organize and 

evaluate information about, and identify trade-offs among, alternatives. 

Because of the merits of benefit-cost analysis, many agencies are 

directed by statute or executive order to conduct such analysis as part of 

rulemaking. For example, Executive Order 12,866 (E.O. 12,866) requires 

executive agencies to assess anticipated costs and benefits not only of 

the proposed regulatory action but also of any alternatives.

The act requires or 

authorizes various federal agencies to issue hundreds of regulations to 

implement its reforms. As agencies have turned their attention to 

implementing these requirements, some industry associations and others 

have raised concerns about the potential impact of the regulations, 

individually and cumulatively, on financial markets and financial and 

nonfinancial institutions. 

2

 

1

Pub. L. No. 111-203, 124 Stat. 1376 (2010). 

However, this 

2

Exec. Order No. 12,866, 58 Fed. Reg. 51,735 (Sept. 30, 1993), as supplemented and 

reaffirmed by Exec. Order No. 13,563, 76 Fed. Reg. 3821 (Jan. 21, 2011). 

 
 

Page 2 GAO-13-101 Dodd-Frank Act Regulations

order does not apply to independent regulatory agencies, including the 

banking, futures, and securities regulators (federal financial regulators).3

Section 1573(a) of the Department of Defense and Full-Year Continuing 

Appropriations Act of 2011 amends the Dodd-Frank Act and directs GAO 

to conduct an annual study of financial services regulations, including 

those of CFPB.4 In November 2011, we issued our first report under this 

mandate.5

• the regulatory analyses, including benefit-cost analyses, that federal 

financial regulators have performed to assess the potential impact of 

selected final rules issued pursuant to the Dodd-Frank Act; 

 Since that report, we have continued to monitor the 

development of rules and regulations related to the Dodd-Frank Act. 

Specifically, this report examines 

• 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 

• what is known about the impact of the Dodd-Frank Act regulations on 

the financial marketplace.

To address the first objective, we reviewed all final rules—a total of 66—

that were issued pursuant to the Dodd-Frank Act and became effective 

between July 21, 2011, and July 23, 2012, to catalogue the regulatory 

analyses (including benefit-cost analyses) the federal financial regulators 

 

3

Independent regulatory agencies are those defined by 44 U.S.C. § 3502(5).

4

Pub. L. No. 112-10, § 1573(a), 125 Stat. 38, 138-39 (2011) (codified at 12 U.S.C. § 

5496b). Under the mandate, we are directed to analyze (1) the impact of regulation on the 

financial marketplace, including the effects on the safety and soundness of regulated 

entities, cost and availability of credit, savings realized by consumers, reductions in 

consumer paperwork burden, changes in personal and small business bankruptcy filings, 

and costs of compliance with rules, including whether relevant federal agencies are 

applying sound cost-benefit analysis in promulgating rules; (2) efforts to avoid duplicative 

or conflicting rulemakings, information requests, and examinations; and (3) other matters 

deemed appropriate by the Comptroller General. As agreed with congressional staff, the 

focus of our reviews will be limited to the financial regulations promulgated pursuant to the 

Dodd-Frank Act.

5

GAO, Dodd-Frank Act Regulations: Implementation Could Benefit from Additional 

Analyses and Coordination, GAO-12-151 (Washington, D.C.: Nov. 10, 2011).
 

Page 3 GAO-13-101 Dodd-Frank Act Regulations

conducted.6 Combined with the 32 rules we identified in our first report, 

we identified 98 Dodd-Frank Act rules in effect as of July 23, 2012.7 To 

assess the regulatory analyses of the agencies, we reviewed the 66 rules 

that were issued and became effective between July 21, 2011, and July 

23, 2012. Of these rules, 54 are substantive regulations while 12 are 

interpretive rules; general statements of policy; and rules that deal with 

agency organization, procedure, or practice. Unlike interpretive rules, 

general statements of policy, and rules that deal with agency 

organization, procedure, or practice, substantive regulations are subject 

to the notice-and-comment rulemaking requirements of the Administrative 

Procedure Act (APA) and generally include some form of regulatory 

analysis.8

 Thus, our review focused on the 54 substantive regulations for 

our analysis. Of the 54 regulations, 19 rules were determined by the 

regulators and OMB to be “major” rules that could have an annual impact 

on the economy of $100 million or more. For agencies subject to E.O. 

12866, such major rules would be considered significant regulatory 

actions and subject to formal benefit-cost analysis.9

 

6

In this report, we use the term rules generally to refer to Federal Register notices of 

agency action pursuant to the Dodd-Frank Act, including regulations, interpretive rules, 

general statements of policy, and rules that deal with agency organization, procedure, or 

practice. 

Three federal 

financial regulators issued 18 of the 19 major rules: the Board of 

Governors of the Federal Reserve System (Federal Reserve), Commodity 

Futures Trading Commission (CFTC), and Securities and Exchange 

Commission (SEC). In addition, the Department of the Treasury 

(Treasury), which is subject to E.O. 12,866, issued the other major rule 

pursuant to the Dodd-Frank Act. We selected four major rules for in-depth 

review and compared the analyses conducted to the principles outlined in 

OMB Circular A-4, which provides guidance to federal agencies on the 

7

A complete list of all Dodd-Frank Act rules in effect as of July 23, 2012, can be found in 

appendix II.

8

5 U.S.C. § 553.

9

As defined by the Congressional Review Act, a major rule is a rule that the Administrator 

of the Office of Information and Regulatory Affairs within OMB finds has resulted in or is 

likely to result in (1) an annual effect on the economy of $100 million or more, (2) a major 

increase in costs or prices, or (3) significant adverse effects on competition, employment, 

investment, productivity, or innovation. 5 U.S.C. § 804(2). This is similar, but not identical, 

to the definition of a “significant regulatory action” under E.O. 12866.
 

Page 4 GAO-13-101 Dodd-Frank Act Regulations

development of regulatory analysis.

10

To examine interagency coordination among or between federal financial 

regulators in developing rules, we reviewed the 66 Dodd-Frank rules that 

were issued and became effective between July 21, 2011, and July 23, 

2012, to identify which required interagency coordination and document 

whether such coordination occurred. We identified 19 rules that required 

interagency coordination. Of the rules requiring interagency coordination, 

we selected three for case studies to examine the extent to which and 

how agencies coordinated to avoid conflict and duplication in rulemaking. 

We selected the rules to include at least one that two or more regulators 

jointly issued and at least one that a single regulator issued. We also 

selected rules to include as many of the federal financial regulators as 

possible, including the Federal Reserve, CFTC, SEC, the Office of the 

Comptroller of the Currency (OCC), and the Federal Deposit Insurance 

Corporation (FDIC). We interviewed agency staff and reviewed 

documentation from the agencies to assess the extent to which and how 

agencies coordinated to avoid conflict and duplication in rulemaking. 

 Within our scope period, the 

Federal Reserve and Treasury each issued one major rule that we 

selected. We selected the lone SEC major rule during the period that 

implemented new statutory authority. CFTC issued several major rules, 

and we selected a rule based on our discussions with current and former 

CFTC staff. We interviewed agency staffs and reviewed documentation

from the agencies to assess the quality of the benefit-cost or similar 

analyses. We also reviewed statutes, regulations, agency guidance, and 

other documentation to identify the analyses federal financial regulators 

were required to conduct and how the agency intended to conduct them.

To examine the impact of Dodd-Frank Act regulations on the financial 

marketplace, we took a multipronged approach. We developed a set of 

indicators to monitor changes in certain characteristics of systemically 

important financial institutions (SIFI) that might be affected by Dodd-Frank 

 

10As independent regulatory agencies that are not required to follow the economic 

analysis requirements of E.O. 12,866, the financial regulators also are not required to 

follow OMB Circular A-4. However, Circular A-4 is an example of best practices for 

agencies to follow when conducting regulatory analyses, and the financial regulators have 

told us that they follow the guidance in principle or spirit.
 

Page 5 GAO-13-101 Dodd-Frank Act Regulations

Act regulations.11

We conducted this performance audit from December 2011 to December 

2012 in accordance with generally accepted government auditing 

standards. Those standards require that we plan and perform the audit to 

obtain sufficient, appropriate evidence to provide a reasonable basis for 

our findings and conclusions based on our audit objectives. We believe 

that the evidence obtained provides a reasonable basis for our findings 

and conclusions based on our audit objectives.

To that end, we reviewed the legislative history of the 

Dodd-Frank Act, the act itself, related regulations, academic studies, 

GAO and agency reports, and other relevant documentation. Although 

changes in the indicators may be suggestive of the impact of the act on 

SIFIs, the indicators have a number of limitations, including that they do 

not identify any causal linkages between the act and changes in the 

indicators. Moreover, factors other than the act affect SIFIs and, thus, the 

indicators. Additionally, we developed a set of indicators related to the (1) 

cost of credit provided by bank SIFIs and (2) safety and soundness of 

bank SIFIs. We used regression analysis to estimate the changes in the 

indicators of bank SIFIs that may be associated with Dodd-Frank Act

provisions and proposed regulations related to the enhanced prudential 

regulation of these bank holding companies by the Federal Reserve. Our 

analysis does not differentiate the effects of the act from simultaneous 

changes in economic conditions or other factors that may affect such 

companies. We obtained and addressed high-level comments and 

suggestions on all our indicators from Financial Stability Oversight 

Council (FSOC) staff and two other market experts. Finally, we analyzed 

the initial impacts of several major rules that were issued pursuant to the 

Dodd-Frank Act and have been final for around 1 year or more. As part 

of that work, we reviewed selected regulations, analyzed available data 

about the potential impacts of the regulations, and interviewed agency 

officials and market participants about such impacts. Appendix I contains 

additional information on our scope and methodology.

 

11The Dodd-Frank Act does not use the term “systemically important financial institution” 

(SIFI). This term is commonly used by academics and other experts to refer to bank 

holding companies with $50 billion or more in total consolidated assets and nonbank 

financial companies designated by FSOC for Federal Reserve supervision and enhanced 

prudential standards under the Dodd-Frank Act. For purposes of this report, we refer to 

these bank and nonbank financial companies as bank systemically important financial 

institutions (bank SIFI) and nonbank systemically important financial institutions (nonbank 

SIFI), respectively. We also refer to nonbank SIFIs and bank SIFIs collectively as SIFIs 

when appropriate. 
 

Page 6 GAO-13-101 Dodd-Frank Act Regulations

The U.S. financial regulatory structure is a complex system of multiple 

federal and state regulators as well as self-regulatory organizations 

(SRO) that operate largely along functional lines. That is, financial 

products or activities generally are regulated according to their function, 

no matter who offers the product or participates in the activity. The 

functional regulator approach is intended to provide consistency in 

regulation, focus regulatory restrictions on the relevant functional areas, 

and avoid the potential need for regulatory agencies to develop expertise 

in all aspects of financial regulation.

In the banking industry, the specific regulatory configuration depends on 

the type of charter the banking institution chooses. Charter types for 

depository institutions include commercial banks, thrifts, and credit 

unions. These charters may be obtained at the state or federal level. The 

federal prudential banking regulators—all of which generally may issue 

regulations and take enforcement actions against industry participants 

within their jurisdiction—are identified in table 1. 

Table 1: Prudential Regulators and Their Basic Functions

Agency Basic function

Office of the Comptroller of the Currency Charters and supervises national banks and federal thrifts.

Board of Governors of the Federal Reserve 

System 

Supervises state-chartered banks that opt to be members of the Federal Reserve 

System, bank holding companies, thrift holding companies and the nondepository 

institution subsidiaries of those institutions, and nonbank financial companies designated 

by the Financial Stability Oversight Council.

Federal Deposit Insurance Corporation Supervises FDIC-insured state-chartered banks that are not members of the Federal 

Reserve System, as well as federally insured state savings banks and thrifts; insures the 

deposits of all banks and thrifts that are approved for federal deposit insurance; and 

resolves all failed insured banks and thrifts and has been given the authority to resolve 

large bank holding companies and nonbank financial companies that are subject to 

supervision by the Board of Governors of the Federal Reserve System and subject to 

enhanced prudential standards.

National Credit Union Administration

a

Charters and supervises federally chartered credit unions and insures savings in federal 

and most state-chartered credit unions.

Source: GAO.

a

In addition, the Dodd-Frank Act created CFPB as an independent bureau 

within the Federal Reserve System that is responsible for regulating the 

offering and provision of consumer financial products and services under 

12 U.S.C. § 5384

Background 

Financial Services 

Regulation 
 

Page 7 GAO-13-101 Dodd-Frank Act Regulations

the federal consumer financial laws. Under the Dodd-Frank Act, at the 

designated transfer date, certain authority vested in the prudential 

regulators transferred to CFPB.12

The securities and futures industries are regulated under a combination of 

self-regulation (subject to oversight by the appropriate federal regulator) 

and direct oversight by SEC and CFTC, respectively. SEC oversees the 

securities industry SROs, and the securities industry as a whole, and is 

responsible for administering federal securities laws and developing 

regulations for the industry. SEC’s overall mission includes protecting 

investors; maintaining fair, orderly, and efficient markets; and facilitating 

capital formation. CFTC oversees the futures industry and its SROs. 

Under the Dodd-Frank Act, CFTC also has extensive responsibilities for 

the regulation of swaps and certain entities involved in the swaps 

markets. CFTC has responsibility for administering federal legislation and 

developing comprehensive regulations to protect the public from fraud 

and manipulation, to insure the financial integrity of transactions, and to 

reduce systemic risk in the marketplace.

 

In addition, the Dodd-Frank Act created FSOC.13 FSOC’s three primary 

purposes are to identify risks to the financial stability of the United States, 

promote market discipline, and respond to emerging threats to the 

stability of the U.S. financial system. FSOC consists of 10 voting 

members and 5 nonvoting members and is chaired by the Secretary of 

the Treasury.14

 

1212 U.S.C. § 5581.

In consultation with the other FSOC members, the 

Secretary is responsible for regular consultation with the financial 

regulatory entities and other appropriate organizations of foreign 

governments or international organizations. 

13The provisions of the Dodd-Frank Act concerning FSOC are contained primarily in 

subtitle A of title I, §§ 111-123, codified at 12 U.S.C. §§ 5321-5333, and title VIII, codified 

at 12 U.S.C. §§ 5461-5472.

14The 10 voting members provide a federal regulatory perspective and an independent 

insurance expert’s view. The 5 nonvoting members offer different insights as state-level 

representatives from bank, securities, and insurance regulators or as the directors of two

new offices within Treasury—the Office of Financial Research and Federal Insurance 

Office—that were established by the Dodd-Frank Act. For additional information on 

FSOC, see GAO, Financial Stability: New Council and Research Office Should Strengthen 

the Accountability and Transparency of Their Decisions, GAO-12-886 (Washington, D.C.: 

Sept. 11, 2012). 
 

Page 8 GAO-13-101 Dodd-Frank Act Regulations

The federal government uses regulation to implement public policy. 

Section 553 of APA contains requirements for the most common type of 

federal rulemaking—informal rulemaking or “notice and comment” 

rulemaking.15

• Initiation of rulemaking action. During initiation, agencies gather 

information that would allow them to determine whether rulemaking is 

needed and identify potential regulatory options. To gather information 

on the need for rulemaking and potential regulatory options, agencies 

may hold meetings with interested parties or issue an advanced 

notice of proposed rulemaking. At this time, the agencies also will 

identify the resources needed for the rulemaking and may draft 

concept documents for agency management that summarize the 

issues, present the regulatory options, and identify needed resources.

While there are inter- and intra-agency variations in the 

informal rulemaking process, federal financial regulators generally share 

three basic rulemaking steps or phases: 

• Development of proposed rule. During this phase of the rulemaking 

process, an agency will draft the notice of proposed rulemaking, 

including the preamble (which is the portion of the rule that informs 

the public of the supporting reasons and purpose of the rule) and the 

rule language. The agency will begin to address analytical and 

procedural requirements in this phase. The agency provides 

“interested persons” with an opportunity to comment on the proposed 

rule, generally for a period of at least 30 days.16

• Development of final rule. In the third phase, the agency repeats, as 

needed, the steps used during development of the proposed rule. 

Once the comment period closes for the proposed rule, the agency 

either would modify the proposed rule to incorporate comments or 

address the comments in the final rule release. This phase also 

includes opportunities for internal and external review. As published in 

the Federal Register, the final rule includes the date on which it 

becomes effective. 

 

15APA also contains requirements for formal rulemaking, which is used in rate-making 

proceedings and other cases involving a statute that requires rules to be made “on the 

record.” Formal rulemaking incorporates evidentiary (or “trial type”) hearings, in which 

interested parties may present evidence, conduct cross-examinations of other witnesses, 

and submit rebuttal evidence. However, few statutes require such on-the-record hearings. 

165 U.S.C. § 553. The notice of proposed rulemaking is to contain (1) a statement of the 

time, place, and nature of public rulemaking proceedings; (2) reference to the legal 

authority under which the rule is proposed; and (3) either the terms or substance of the 

proposed rule or a description of the subjects and issues involved. 

Regulations and Federal 

Rulemaking 
 

Page 9 GAO-13-101 Dodd-Frank Act Regulations

APA’s notice and comment procedures exclude certain categories of 

rules, including interpretative rules; general statements of policy; rules 

that deal with agency organization, procedure, or practice; or rules for 

which the agency finds (for good cause) that notice and public comment 

procedures are impracticable, unnecessary or contrary to the public 

interest.

Under the Dodd-Frank Act, federal financial regulatory agencies are 

directed or have the authority to issue hundreds of regulations to 

implement the act’s provisions. In some cases, the act gives the agencies 

little or no discretion in deciding how to implement the provisions. For 

instance, the Dodd-Frank Act made permanent a temporary increase in 

the FDIC deposit insurance coverage amount ($100,000 to $250,000); 

therefore, FDIC revised its implementing regulation to conform to the 

change. However, other rulemaking provisions in the act appear to be 

discretionary in nature, stating that (1) certain agencies may issue rules to 

implement particular provisions or that the agencies may issue 

regulations that they decide are “necessary and appropriate”; or (2) 

agencies must issue regulations to implement particular provisions but 

have some level of discretion over the substance of the regulations. As a 

result, for these rulemaking provisions, the agencies may decide to 

promulgate rules for some or all of the provisions, and may have broad 

discretion to decide what these rules will contain and what exemptions, if 

any, will apply.

In many instances, exemptions to Dodd-Frank Act provisions are 

encompassed in definitions of certain terms that are broadly established 

in statute and require clarification through regulation. Persons or entities 

that meet the regulatory definitions are subject to the provision, and those 

that do not meet the definitions are not. For example, CFTC and SEC 

promulgated a regulation that defined the terms ‘‘swap dealer,’’ ‘‘securitybased swap dealer,’’ ‘‘major swap participant,’’ ‘‘major security-based 

swap participant,’’ and ‘‘eligible contract participant.’’17

 

1777 Fed. Reg. 30,596 (May 23, 2012).

 Persons that do 

not meet the definitions of these terms may not be subject to the DoddFrank Act provisions concerning swaps and security-based swaps, 

including registration, margin, capital, business conduct, and other 

requirements. Similarly, FSOC promulgated a regulation and interpretive 

Dodd-Frank Act 

Regulations 
 

Page 10 GAO-13-101 Dodd-Frank Act Regulations

guidance regarding the specific criteria and analytic framework FSOC

would apply in determining whether a nonbank financial company could 

pose a threat to the financial stability of the United States.18 Financial 

firms that are not designated by FSOC, acting pursuant to the statutory 

standards, would not be subject to enhanced prudential supervision by 

the Federal Reserve.

Federal agencies conducted the regulatory analyses required by various 

federal statutes for all 54 Dodd-Frank Act regulations that we reviewed. 

As part of their analyses, the agencies generally considered, but typically 

did not quantify or monetize, the benefits and costs of these regulations. 

As independent regulatory agencies, the federal financial regulators are 

not subject to executive orders that require comprehensive benefit-cost 

analysis in accordance with guidance issued by OMB. While most 

financial regulators said that they attempt to follow OMB’s guidance in 

principle or spirit, we found that they did not consistently follow key 

elements of the guidance in their regulatory analyses. We previously 

recommended that regulators should more fully incorporate the OMB 

guidance into their rulemaking policies. 

As part of their rulemakings, federal agencies generally must conduct 

regulatory analysis pursuant to the Paperwork Reduction Act (PRA) and 

the Regulatory Flexibility Act (RFA), among other statutes.19

 

1877 Fed. Reg. 21,637 (Apr. 11, 2012).

PRA and 

RFA require federal agencies to assess various impacts and costs of their 

rules, but do not require the agencies to formally assess the benefits and 

costs of alternative regulatory approaches or the reason for selecting one 

alternative over another. In addition to these requirements, authorizing or 

other statutes require certain federal financial regulators to consider 

19Pub. L. No. 104-13, 109 Stat. 163 (1995) (codified at 44 U.S.C. §§ 3501-3520); Pub. L. 

No. 96-354, 94 Stat. 1164 (1980) (codified at 5 U.S.C. §§ 601-612). PRA requires 

agencies to justify any collection of information from the public to minimize the paperwork 

burden the collection imposes and to maximize the practical utility of the information 

collected. 44 U.S.C. § 3504. RFA requires federal agencies to (1) assess the impact of

their regulation on small entities, including businesses, governmental jurisdictions, and 

certain not-for-profit organizations with characteristics set forth in the act, and (2) consider 

regulatory alternatives to lessen the regulatory burden on small entities. 5 U.S.C. § 603. 

Regulatory Analyses 

Provide Limited 

Information about 

Benefits and Costs of 

Chosen or Alternative 

Approaches 

Regulators Were Not 

Required to Assess 

Benefits and Costs of 

Regulatory Alternatives 
 

Page 11 GAO-13-101 Dodd-Frank Act Regulations

specific benefits, costs, and impacts of their rulemakings, as the following 

describes. 

• CFTC, under section 15(a) of the Commodity Exchange Act, is 

required to consider the benefits and costs of its action before 

promulgating a regulation under the Commodity Exchange Act or 

issuing certain orders. Section 15(a) further specifies that the benefits 

and costs shall be evaluated in light of the following five broad areas 

of market and public concern: (1) protection of market participants and 

the public; (2) efficiency, competitiveness, and financial integrity of 

futures markets; (3) price discovery; (4) sound risk-management 

practices; and (5) other public interest considerations.20

• Under the Consumer Financial Protection Act (Title X of the DoddFrank Act), CFPB must consider the potential benefits and costs of its 

rules for consumers and entities that offer or provide consumer 

financial products and services. These include potential reductions in 

consumer access to products or services, the impacts on depository 

institutions with $10 billion or less in assets, as directed by 12 U.S.C. 

§ 5516, and the impacts on consumers in rural areas.21 In its initial 

RFA analysis, CFPB also must describe any projected increase in the 

cost of credit for small entities and any significant alternatives that 

would minimize such increases for small entities.22

• In addition to the protection of investors, SEC must consider whether 

a rule will promote efficiency, competition, and capital formation 

whenever it is engaged in rulemaking and is required to consider or 

determine whether an action is necessary or appropriate in the public 

interest.23 SEC also must consider the impact that any rule 

promulgated under the Securities Exchange Act would have on 

competition.24

 

20§ 15(a), 42 Stat. 998 (1922) (codified, as amended, at 7 U.S.C. § 19(a). 

This provision states that a rule should not be adopted 

if it would impose a burden on competition that is not necessary or 

appropriate to the act’s purposes.

2112 U.S.C. § 5481(6). 

225 U.S.C. §§ 603(d).

23Pub. L. No. 104-290, § 106(a), 110 Stat. 3416, 3424 (1996) (codified at 15 U.S.C. § 

77b(b)). Conforming amendments to the Investment Advisers Act of 1940 were made in 

section 224 of the Gramm Leach Bliley Act. Pub. L. No. 106-102, § 224, 113 Stat. 1338, 

1402 (1999) (codified at 15 U.S.C. § 80b-2(c)). 

24§ 23(a)(2), 48 Stat. 881 (1934) (codified at 15 U.S.C. § 78w(a)(2)). 
 

Page 12 GAO-13-101 Dodd-Frank Act Regulations

• The Electronic Funds Transfer Act (EFTA), as amended by the DoddFrank Act, requires the Federal Reserve to prepare an analysis of the 

economic impact of a specific regulation that considers the costs and 

benefits to financial institutions, consumers, and other users of 

electronic fund transfers.25

However, like PRA and RFA, none of these authorizing statutes prescribe 

formal, comprehensive benefit and cost analyses that require the 

identification and assessment of alternatives. 

The analysis must address the extent to 

which additional paperwork would be required, the effect upon 

competition in the provision of electronic banking services among 

large and small financial institutions, and the availability of such 

services to different classes of consumers, particularly low-income 

consumers.

In contrast, Executive Order 12,866 (E.O. 12,866), supplemented by 

Executive Order 13,563 (E.O. 13,563), requires covered federal agencies, 

to the extent permitted by law and where applicable, to (1) assess 

benefits and costs of available regulatory alternatives and (2) include both 

quantifiable and qualitative measures of benefits and costs in their 

analysis, recognizing that some benefits and costs are difficult to 

quantify.

26

 

2515 U.S.C. § 1693b(a)(2).

According to OMB, such analysis can enable an agency to 

learn if the benefits of a rule are likely to justify the costs and discover

which of the possible alternatives would yield the greatest net benefit or 

be the most cost-effective. In 2003, OMB issued Circular A-4 to provide 

guidance to federal executive agencies on the development of regulatory 

26Exec. Order No. 12,866, 58 Fed. Reg. 51,735 (Sept. 30, 1993). For significant rules 

(those with an annual effect on the economy of $100 million or more, or that trigger one of 

the other specified criteria), the order further requires agencies to prepare a detailed 

regulatory (or economic) analysis of both the benefits and costs. More recently, E.O. 

13,563 supplemented E.O. 12866, in part by incorporating its principles, structures, and 

definitions. Exec. Order No. 13,563, 76 Fed. Reg. 3,821 (Jan. 18, 2011). E.O. 12,866

contains 12 principles of regulation that direct agencies to perform specific analyses to 

identify the problem to be addressed, assess its significance, assess both the benefits and 

costs of the intended regulation, design the regulation in the most cost-effective manner to 

achieve the regulatory objective, and base decisions on the best reasonably obtained 

information available.
 

Page 13 GAO-13-101 Dodd-Frank Act Regulations

analysis as required by E.O. 12,866.27 The guidance defines good 

regulatory analysis as including a statement of the need for the proposed 

regulation, an assessment of alternatives, and an evaluation of the 

benefits and costs of the proposed regulation and the alternatives. It also 

standardizes the way benefits and costs of federal regulatory actions 

should be measured and reported. Of the federal agencies included in our 

review, only FSOC and Treasury are subject to E.O. 12,866. As 

independent regulatory agencies, the federal financial regulators—CFPB, 

CFTC, FDIC, the Federal Reserve, OCC, the National Credit Union 

Administration (NCUA), and SEC—are not subject to E.O. 12,866 and 

OMB’s Circular A-4.28

Of the 66 Dodd-Frank Act rules within our scope, 54 regulations were 

substantive—generally subject to public notice and comment under 

APA—and required the agencies to conduct regulatory analysis. These 

rules were issued individually or jointly by CFTC, FDIC, the Federal 

Reserve, FSOC, NCUA, OCC, SEC, or Treasury.29

• Agencies conducted the required regulatory analyses. The 

agencies conducted regulatory analysis pursuant to PRA and RFA for 

all 54 regulations. Agencies also conducted the analyses required 

under their authorizing statutes. Specifically, CFTC and SEC 

individually or jointly issued 39 regulations and considered their 

potential impact, including their benefits and costs in light of each 

agency’s respective public interest considerations.

(See app. II for a list 

of the regulations within the scope of our review.) In examining the 

regulatory analyses conducted for these 54 regulations, we found the 

following.

• Agencies issued 19 major rules. Of the 54 regulations that were 

issued and became effective between July 21, 2011, and July 23, 

2012, the agencies identified 19 as being major rules—that is, 

 

27OMB, Circular A-4: Regulatory Analysis, September 17, 2003. Circular A-4 refined 

OMB’s “best practices” guidance issued in 1996 and 2000. Executive Order 13,579 (E.O. 

13,579) encourages independent regulatory agencies to comply with E.O. 13563. Exec. 

Order No. 13,579, 76 Fed. Reg. 41,587 (July 14, 2011).

28Independent regulatory agencies are those defined by 44 U.S.C. § 3502(5). This 

statutory definition was revised by the Dodd-Frank Act to include OCC and other 

agencies.

29CFPB issued three rules that came into effect during our scope period, but none of the 

rules required public notice-and-comment rulemaking under APA.
 

Page 14 GAO-13-101 Dodd-Frank Act Regulations

resulting in or likely to result in a $100 million annual impact on the 

economy. Specifically, CFTC issued 10 major rules; SEC issued 5 

major rules; CFTC and SEC jointly issued 2 major rules; the Federal 

Reserve issued 1 major rule; and Treasury issued 1 major rule.30

• One of the 19 major rules was subject to E.O. 12866 and its 

benefit-cost analysis requirement. Of the agencies that issued 

major rules, only Treasury is subject to E.O. 12,866, which requires a 

formal assessment of the benefits and costs of an economically 

significant rule. Thus, as required, Treasury analyzed the benefits 

and costs of its proposed major rule.

 

31

• Agencies considered the benefits and/or costs in the majority of 

their rules, but did not generally quantify them. As part of their 

regulatory analyses or in response to public comments received on 

their proposed rules, the agencies frequently discussed the potential 

benefits and costs of their rules. For instance, CFTC and SEC asked 

for public comments and data on the benefits and costs in all of their 

proposed rules, and the other regulators generally asked for public 

comments on the costs and, in many cases, benefits of their proposed 

rules. For the 54 substantive Dodd-Frank Act regulations that we 

reviewed, 49 regulations included discussions of potential benefits or 

costs. The cost discussions primarily were qualitative except for the 

PRA analysis, which typically included quantitative data (such as 

hours or dollars spent to comply with paperwork-related 

requirements). Other potential costs, however, were less frequently 

quantified. In comparison, the benefit discussions largely were 

qualitative and framed in terms of the objectives of the rules. 

 

30The agencies assess whether a rule is major using criteria in the Congressional Review 

Act and submit their assessment for determination by OMB. As defined by the 

Congressional Review Act, a major rule is a rule that OMB’s Office of Information and 

Regulatory Affairs finds has resulted in or is likely to result in (1) an annual effect on the 

economy of $100 million or more; (2) a major increase in costs or prices; or (3) significant 

adverse effects on competition, employment, investment, productivity, or innovation. 5 

U.S.C. § 804(2). This is similar, but not identical, to the definition of “significant regulatory 

action” under E.O. 12866.

3177 Fed. Reg. 29,884 (May 21, 2012).
 

Page 15 GAO-13-101 Dodd-Frank Act Regulations

Although independent federal financial regulators are not required to 

follow OMB’s Circular A-4 when developing regulations, they told us that 

they try to follow this guidance in principle or spirit. As discussed in more 

detail below, we previously found that the policies and procedures of 

these agencies did not fully reflect OMB guidance and recommended that 

they incorporate the guidance more fully in their rulemaking policies and 

procedures.32

Table 2: Summary of Four Major Rules Reviewed

To assess the extent to which the regulators follow Circular 

A-4, we examined four major rules (see table 2). Specifically, we 

examined whether the regulators (1) identified the problem to be 

addressed by the regulation and the significance of the problem; (2) 

considered alternatives reflecting the range of statutory discretion; and (3) 

assessed the benefits and costs of the regulation.

Rulemaking

Responsible 

regulator Rule synopsis

Real-Time Public Reporting of Swap 

Transaction Data

CFTC Provides standards for the method and timing of real-time public 

reporting; swap transaction and pricing data to be publicly

disseminated in real-time; and time delays for public 

dissemination of swap transaction and pricing data.

Debit Card Interchange Fees and Routing Federal Reserve Provides standards for reasonable and proportional interchange 

transaction fees for electronic debit transactions, exemptions 

from the interchange transaction fee limitations, prohibitions on 

evasion and circumvention, prohibitions on payment card 

network exclusivity arrangements and routing restrictions for 

debit card transactions, and reporting requirements for debit 

card issuers and payment card networks. 

Securities Whistleblower Incentives and 

Protections

SEC Provides for payment of awards, subject to certain limitations 

and conditions, to whistleblowers who voluntarily provide SEC 

with original information about a violation of the securities laws 

that leads to the successful enforcement of an action brought by 

SEC that results in monetary sanctions exceeding $1,000,000.

Assessment of Fees on Large Bank 

Holding Companies and Nonbank Financial 

Companies Supervised by the Federal 

Reserve Board to Cover the Expenses of 

the Financial Research Fund

Treasury Provides standards directing how Treasury will (a) determine 

which companies will be subject to an assessment fee, (b) 

estimate the total expenses that are necessary to carry out the 

activities to be covered by the assessment, (c) determine the 

assessment fee for each of these companies, and (d) bill and 

collect the assessment fee from these companies.

Source: GAO summary of information from the Federal Register. 

 

32See GAO-12-151. 

Regulators Generally 

Developed Selected Major 

Rules in Ways Consistent 

with the Principles, but not 

Certain Key Elements, of 

the OMB Guidance
 

Page 16 GAO-13-101 Dodd-Frank Act Regulations

While the regulators identified the problem to be addressed in their rule 

proposals, CFTC, the Federal Reserve, and SEC did not present benefitcost information in ways consistent with certain key elements of OMB’s 

Circular A-4. For example, CFTC and SEC did not evaluate the benefits 

and costs of regulatory alternatives they considered for key provisions 

compared to their chosen approach. Also, because of the lack of data and 

for other reasons, the agencies generally did not quantitatively analyze 

the benefits and, to a lesser degree, costs in their rules. Agencies’ 

approaches for calculating a baseline against which to compare benefits 

and costs of regulatory alternatives in their analysis varied, and agency 

staffs told us that the lack of data complicated such efforts.

Two of the major rules we reviewed did not evaluate alternative 

approaches for key provisions in their rule proposals, but the final rule 

releases did evaluate alternatives considered by the agencies. In 

implementing the Dodd-Frank provisions, the agencies exercised 

discretion in designing the various requirements that composed their 

rules, such as defining key terms and determining who will be subject to 

the regulations and how. In their rule proposals, CFTC and SEC identified 

alternative approaches for key provisions of their rule proposals. For 

example, CFTC identified the consolidated tape approach—which is used 

in the U.S. securities markets to publicly report data on securities—as an 

alternative method for distributing swap transaction data in real time. 

SEC considered requiring potential whistleblowers to use in-house 

complaint and reporting procedures before they make a whistleblower 

submission to SEC. However, CFTC and SEC generally did not evaluate 

the benefits and costs of their proposed rules’ requirements compared to 

such alternative requirements. Instead, their rule proposals only 

presented the proposed set of requirements composing their rules and 

discussed the potential benefits and costs of their overall regulatory 

approaches. As part of their proposed rules, CFTC and SEC asked the 

public for comments on a number of questions, including about possible 

alternatives to proposed requirements.33

 

33E.O. 12,866 requires that covered federal agencies assess the benefits and costs of 

potentially effective and reasonably feasible alternatives to the planned regulation, 

identified by the agencies or the public. See Exec. Order No. 12,866, Section 

6(a)(3)(C)(iii). In addition, Circular A-4 states that covered federal agencies should 

carefully consider all appropriate alternatives for the key attributes or provisions of the 

rule. See Circular No. A-4, at 16.

In their final rules, CFTC and 

SEC noted that they considered alternatives provided by commenters on 

Evaluation of Alternative 

Approaches in Proposed Rules
 

Page 17 GAO-13-101 Dodd-Frank Act Regulations

the proposed rules and revised their rules, so as to reduce regulatory 

burden or improve the effectiveness of the rules. This approach generally 

is consistent with each agency’s guidance on regulatory analysis.34

One of the rules we reviewed identified the alternative approaches but did 

not describe the reasons for choosing one alternative over another in its 

rule proposal. The Federal Reserve identified several alternative 

approaches for key provisions in the rule proposal for implementing the 

interchange fee rule and some of their potential benefits and costs. 

However, it did not determine which of the alternatives would produce 

greater net benefits or be more cost-effective. Instead, the Federal 

Reserve asked the public to comment on which alternatives might be 

preferable to the others based on several factors, including benefits and 

costs. Federal Reserve staff told us that they took this approach because 

it was difficult to predict how market participants would respond to the 

rule. They said that they had discussions with senior management about 

alternative approaches and analyzed the costs and benefits of the 

alternatives, including how alternatives could have different impacts on 

different market participants, but this information was not contained in the 

proposed rule. In the final rule, responding to public comments, the 

Federal Reserve selected one alternative over the other alternatives and 

provided reasons for the selection. Without information about the 

rationale for selecting one alternative over another in the proposed rule, 

interested parties may not know how to effectively gauge the magnitude 

of the potential effects, which could hinder their ability to comment on the 

proposed rule.

However, OMB guidance notes that good regulatory analysis is designed 

to inform the public and other parts of the government of the effects of 

alternative actions. Without information about the agency’s evaluation of 

the benefits and costs of alternatives for key provisions, interested parties 

may not have a clear understanding of the assumptions underlying the 

rule’s requirements, which could hinder their ability to comment on 

proposed rules. 

 

34CFTC’s real-time publication rule was promulgated early in the Dodd-Frank Act 

implementation process, and CFTC staff stated that they have since made improvements 

to their economic analyses. SEC has since revised its guidance for economic analysis to 

include evaluation of the benefits and costs of alternative approaches, as discussed 

below.
 

Page 18 GAO-13-101 Dodd-Frank Act Regulations

Only one rule that we reviewed identified and evaluated alternative 

regulatory approaches. In its rule proposal, Treasury determined that the 

fee assessment rule was a significant regulatory action under E.O. 12,866 

and, thus, conducted a regulatory impact assessment. In its proposal, 

Treasury identified, evaluated, and discussed several alternative 

regulatory approaches. Treasury evaluated the impact of alternative 

approaches on interested parties and selected the approach it viewed as 

equitable and cost-effective, consistent with the OMB guidance.

The regulators generally did not quantitatively analyze the benefits and, to 

a lesser degree, costs of the rules we reviewed. CFTC, the Federal 

Reserve, and SEC did not quantitatively analyze the benefits of these 

rules. CFTC and SEC monetized and quantified paperwork-related costs 

under PRA, but did not quantify any other costs. Federal Reserve staff 

told us that they monetized some of the direct costs of the debit card 

interchange fee rule. Specifically, they conducted a survey to determine 

an average debit card interchange fee in 2009 and used that data to help 

establish the debit card interchange fee cap under the rule. However, 

while the debit card interchange fee cap information was included in the 

proposed rule, measures of revenue loss that could result from the rule 

were not included.35

As we have reported, the difficulty of reliably estimating the costs of 

regulations to the financial services industry and the nation has long been 

recognized, and the benefits of regulation generally are regarded as even 

more difficult to measure. Similarly, Circular A-4 recognizes that some 

important benefits and costs may be inherently too difficult to quantify or 

monetize given current data and methods and recommends a careful 

evaluation of qualitative benefits and costs. All of the rules we reviewed 

included qualitative descriptions of the potential benefits and costs 

associated with the rules. The agencies also generally included 

qualitative information on the nature, timing, likelihood, location, and 

distribution of the benefits and costs. For instance, in discussing the 

In contrast to the other rules we reviewed, Treasury 

monetized and quantified some costs of the rule beyond paperworkrelated costs. Specifically, Treasury provided a range of estimated 

assessment amounts that described the approximate size of the transfer 

from assessed companies to the government.

 

35See http://www.federalreserve.gov/newsevents/press/bcreg/20110629a.htm (accessed

Oct. 9, 2012) for the survey results and other releases related to the debit card 

interchange fee rule.

Quantitative Analysis of 

Benefits and Costs of Major 

Rules 
 

Page 19 GAO-13-101 Dodd-Frank Act Regulations

benefits of the reporting and public dissemination requirements, CFTC 

stated that it anticipates that the real-time reporting rule “will generate 

several overarching, if presently unquantifiable, benefits to swaps market 

participants and the public generally. These include: [i]mprovements in 

market quality; price discovery; improved risk management; economies of 

scale and greater efficiencies; and improved regulatory oversight.”36

Also, the regulators did not consistently present analysis of any important 

uncertainties connected with their regulatory decisions. For instance, the 

Federal Reserve stated that the potential impacts of the debit card 

interchange fee rule depended in large part on the reaction of certain 

market actors to the rule. In contrast, we did not find a discussion of any 

important uncertainties associated with SEC’s whistleblower rules, but 

SEC staff told us that the inherent uncertainties in making predictions 

about human behavior was a key reason why it was not possible to 

engage in a quantitative analysis of the rule. However, we found that the 

agencies generally based their analyses on the best reasonably available, 

peer-reviewed economic information. Treasury described certain direct 

costs associated with complying with the fee assessment rule. Treasury 

used economic reasoning to identify some benefits or types of benefits 

associated with the rule, particularly in considering the choice of 

assessment methodology, which was the area of discretion left by 

Congress to the agency.

CFTC then went on to describe the ways in which these benefits might 

accrue to market participants. However, some of the agencies did not 

discuss the strengths and limitations of the qualitative information and did 

not discuss key reasons why the benefits and costs could not be 

quantified. 

We also found the regulators’ approaches for calculating a baseline 

against which to compare benefits and costs of regulatory approaches 

varied. OMB’s Circular A-4 states that the baseline should be the best 

assessment of the way the world would look absent the proposed action. 

In cases where substantial portions of the rule may simply restate 

statutory requirements that would be self-implementing, Circular A-4 

provides for use of a prestatute baseline—that is, the baseline should 

reflect the status quo before the statute was enacted. However, the 

guidance further states that if the agency is able to determine where it 

 

3677 Fed. Reg. 1182, 1234.

Establishment of Baseline for 

Analysis 
 

Page 20 GAO-13-101 Dodd-Frank Act Regulations

has discretion in implementing a statute, it can use a post-statute 

baseline to evaluate the discretionary elements of the action. CFTC and 

SEC both did not establish post-statute baselines and instead evaluated 

the benefits and costs of the discretionary elements of their rules in terms 

of statutory objectives. Specifically, CFTC evaluated each discretionary 

element of the real-time reporting rule based on whether it met the 

statutory objectives to reduce risk, increase transparency, and promote 

market integrity.37 Similarly, SEC evaluated each discretionary element 

of the whistleblower protection rule according to four broad objectives 

based on statutory goals and the nature of public comments.38

Agency staffs told us developing a baseline from which to assess the 

benefits and costs of what would have happened in the absence of a 

regulation was complicated by the lack of reliable data to quantify the 

benefits and costs. For example, CFTC staff told us that they were 

challenged because little public data were available about the opaque 

swaps market. Moreover, because the rule created a new regulatory 

regime, CFTC did not have the data needed for the analysis. Instead, 

CFTC had to rely on market participants to voluntarily provide it with 

proprietary data. CFTC staff said that they did receive some proprietary 

data but that they were incomplete. Similarly, for the whistleblower 

 We found 

that the Federal Reserve generally took this approach in developing the 

debit card interchange fee rule. In contrast, Treasury, which is subject to 

E.O. 12,866, used a post-statute baseline to evaluate the discretionary 

elements of the fee assessment rule. SEC staff said they would have 

described the analysis somewhat differently under their new economic 

analysis guidance (discussed below), which directs staff to consider the 

overall economic impacts, including both those attributable to 

congressional mandates and those that result from an exercise of 

discretion. SEC’s guidance states that this approach often will allow for a 

more complete picture of a rule’s economic effects, particularly because 

there are many situations in which it is difficult to distinguish between the 

mandatory and discretionary components of a rule.

 

3777 Fed. Reg. 1182, 1232, 1233. 

3876 Fed. Reg. 34,300, 34,356. The four objectives were (i) encourage high quality 

submissions and discourage frivolous submissions; (ii) encourage whistleblowers to 

provide information early, rather than waiting to receive a request or inquiry from a 

relevant authority; (iii) minimize unnecessary burdens on whistleblowers and establish fair, 

transparent procedures; and (iv) promote the use of effective internal compliance 

programs in appropriate circumstances.
 

Page 21 GAO-13-101 Dodd-Frank Act Regulations

protection rule, SEC staff said that they asked the public for data in their 

draft rule but did not receive any. In the absence of data, SEC cited 

related research in its rule release, but staff noted that they were reluctant 

to weigh this research too heavily because the programs covered in the 

research differed in important respects from SEC’s program. In addition, 

Federal Reserve staff said that quantifying the effects of the debit card 

interchange fee rule was a major challenge because of the lack of data.

Although not subject to E.O. 12,866 and, in turn, OMB Circular A-4, most 

of the federal regulators told us that they try to follow Circular A-4 in 

principle or spirit.39 In our previous review, we found that the policies and 

procedures of these regulators did not fully reflect OMB guidance and 

recommended that they incorporate the guidance more fully in their 

rulemaking policies and procedures. For example, each federal regulator

has issued guidance generally explaining how its staff should analyze the 

benefits and costs of the regulatory approach selected, but unlike the 

OMB guidance, such guidance generally does not encourage staff to 

identify and analyze the benefits and costs of available alternative 

approaches. Since we issued our report, OCC and SEC have revised 

their guidance, but the other agencies have not yet done so. CFTC last 

revised its guidance in May 2011, and in May 2012 it signed a 

Memorandum of Understanding with OMB that allows OMB staff to

provide technical assistance to CFTC staff as they consider the benefits 

and costs of proposed and final rules.40

Issued in March 2012, SEC guidance on economic analysis for 

rulemakings closely follows E.O. 12,866 and Circular A-4.

 

41

 

39Treasury, as noted above, is subject to E.O. 12,866 and Circular A-4.

Specifically, 

SEC’s guidance defines the basic elements of good regulatory economic 

analysis in a manner that closely parallels the elements listed in Circular 

A-4: (1) a statement of the need for the proposed action; (2) the definition 

of a baseline against which to measure the likely economic 

consequences of the proposed regulation; (3) the identification of 

alternative regulatory approaches; and (4) an evaluation of the benefits 

40CFTC has separate guidance for proposed rules and final rules, issued in September 

2010 and May 2011, respectively. 

41SEC’s guidance on economic analysis is available on the SEC website: 

http://www.sec.gov/divisions/riskfin.shtml.

Some Agencies’ Guidance 

on Regulatory Analysis 

Continues to Omit Key 

Elements of OMB’s 

Regulatory Guidance
 

Page 22 GAO-13-101 Dodd-Frank Act Regulations

and costs—both quantitative and qualitative—of the proposed action and 

the main alternatives. In addition, the guidance explains these elements 

and describes the ways rulemaking teams can satisfy each of the 

elements borrowing directly from Circular A-4. OCC guidance on 

economic analysis defines the elements included in a full cost-benefit 

analysis in a similar fashion and includes citations to specific sections of 

Circular A-4 to guide staff through the application of each element. 

For other federal financial regulators, by continuing to omit core elements 

of OMB Circular A-4, their regulatory guidance may cause staff to 

overlook or omit such best practices in their regulatory analysis. In turn, 

the analyses produced may lack information that interested parties 

(including consumers, investors, and other market participants) could use 

to make more informed comments on proposed rules. For example, in 

our review of four major rules, we found that most of the agencies did not 

consistently discuss how they selected one regulatory alternative over 

another or assess the potential benefits and costs of available 

alternatives. Without information about the benefits and costs of 

alternatives that agencies considered, interested parties may not know 

which alternatives were considered and the effects of such alternatives, 

which could hinder their ability to comment on proposed rules. More fully 

incorporating OMB’s guidance into their rulemaking guidance, as we 

previously recommended, could help agencies produce more robust and 

transparent rulemakings.

Federal financial regulators have continued to coordinate on rulemakings 

informally, but coordination may not eliminate the potential for differences 

in related rules. Regulators have coordinated on 19 of the 54 substantive 

regulations that we reviewed, in some cases voluntarily coordinating their 

activities and also extending coordination internationally. According to 

agency staff, most interagency coordination during rulemaking largely 

was informal and conducted at the staff level. Differences in rules could 

remain after interagency coordination, because the rules reflected 

differences in factors such as regulatory jurisdiction or market or product 

type. While a few regulators have made progress on developing guidance 

for interagency coordination during rulemaking, most have not. 

Regulators Continue 

to Coordinate 

Informally on 

Rulemakings, but 

Differences among 

Related Rules Still 

Exist 
 

Page 23 GAO-13-101 Dodd-Frank Act Regulations

Both the Dodd-Frank Act and the federal financial regulators whom we 

interviewed recognize the importance of interagency coordination during 

the rulemaking process. In general, coordination during the rulemaking 

process occurs when two or more regulators jointly engage in activities to 

reduce duplication and overlap in regulations. Effective coordination could 

help regulators minimize or eliminate staff and industry burden, 

administrative costs, conflicting regulations, unintended consequences, 

and uncertainty among consumers and markets. 

Recognizing the importance of coordination, the act imposes specific 

interagency coordination and consultation requirements and 

responsibilities on regulators or certain rules. For instance, section 171 

(referred to as the Collins Amendment) requires that the appropriate 

federal banking agencies establish a risk-based capital floor on a 

consolidated basis.

42 In addition, while section 619 (referred to as the 

Volcker Rule) does not require the federal banking agencies (FDIC, the 

Federal Reserve, and OCC) to issue a joint rule together with CFTC and 

SEC, it requires that they consult and coordinate with each other, in part 

to better ensure that their regulations are comparable.43

Federal financial regulators also have highlighted the importance of 

coordination during the rulemaking process. For example, in testifying 

Further, the act 

broadly requires some regulators to coordinate when promulgating rules 

for a particular regulatory area. For example, under Title VII, SEC and 

CFTC must coordinate and consult with each other and prudential 

regulators before starting rulemaking or issuing an order on swaps or 

swap-related subjects—for the express purpose of assuring regulatory 

consistency and comparability across the rules or orders. The act also 

includes specific requirements for CFPB. Title X requires CFPB to consult 

with the appropriate prudential regulators or other federal agencies, both 

before proposing a rule and during the comment process, regarding 

consistency with prudential, market, or systemic objectives administered 

by such agencies. 

 

42Pub. L. No. 111-203, § 171 (codified at 12 U.S.C. § 5371). The final rule promulgated 

under § 171 can be found at 76 Fed. Reg. 37,620 (June 28, 2011). 

43Section 619 of the Dodd-Frank Act prohibits banking entities, including insured 

depository institutions (other than certain limited purpose trust companies), and their 

affiliates, which benefit from federal insurance on customer deposits or access to the 

discount window, from engaging in proprietary trading or investing in or sponsoring hedge 

funds or private equity funds, subject to certain exceptions. 12 U.S.C. § 1851.

Dodd-Frank Act and 

Regulators Recognize the 

Importance of Interagency 

Coordination 
 

Page 24 GAO-13-101 Dodd-Frank Act Regulations

about the need to coordinate agency rulemakings, FSOC’s chairperson

commented on the importance of coordinating both domestically and 

internationally to prevent risks from migrating to regulatory gaps—as they 

did before the 2007-2009 financial crisis—and to reduce U.S. vulnerability 

to another financial crisis.44 At the same time, we noted in a recent report 

that the FSOC chairperson has recognized the challenges of coordinating 

on the Dodd-Frank Act rulemakings assigned to specific FSOC 

members.45 He noted that the coordination in the rulemaking process 

represented a challenge because the Dodd-Frank Act left in place a 

financial system with multiple, independent agencies with overlapping 

jurisdictions and different responsibilities. However, the chairperson also 

noted that certain agencies were working much more closely together 

than they did before the creation of FSOC. This observation has been 

repeated by other regulators, whose staffs have told us that interagency 

coordination in rulemaking has increased since the passage of the DoddFrank Act.

We found documentation of coordination among the rulemaking agency 

and other domestic or international regulators for 19 of the 54 substantive 

regulations that were issued and became effective between July 21, 

2011, and July 23, 2012. The act required coordination in 16 of the 19

rulemakings. Specifically, 6 of the 19 regulations were jointly issued by 

two or more regulators and, thus, inherently required interagency 

coordination (see table 3). The act stipulated coordination for 10 other 

regulations. In the Federal Register rule releases, we found evidence 

documenting the coordination required by the act as well as voluntary 

coordination with additional regulators. For example, FDIC’s regulation on 

“Certain Orderly Liquidation Authority Provisions” described voluntary 

coordination with the Federal Reserve.46

 

44The Annual Report of the Financial Stability Oversight Council, Before the Committee on 

Financial Services, 112th Cong. 5 (Oct. 6, 2011) (statement of Timothy F. Geithner, 

Secretary of the Treasury). 

Similarly, CFTC was required to 

coordinate with SEC on six swaps regulations it issued, but the agency 

also coordinated with other regulators on two of those regulations. 

Further, CFTC coordinated with foreign regulators on all six swaps 

regulations. The act did not require coordination for the other three 

45See GAO-12-886. 

4676 Fed. Reg. 41,626, 41,628 (July 15, 2011). 

Regulators Coordinated as 

Required, and Such 

Coordination Involved 

Around One-Third of Their 

Dodd-Frank Regulations 
 

Page 25 GAO-13-101 Dodd-Frank Act Regulations

regulations for which we found documentation of coordination, indicating 

that the agencies voluntarily coordinated. For the remaining 35 

regulations that we reviewed, which did not require interagency 

coordination, we did not find any documentation of coordination among 

the agencies.

47

Table 3: Documentation of Coordination in Releases of Dodd-Frank Regulations, July 21, 2011 through July 23, 2012

Rulemaking

Responsible 

regulator

Coordination 

requirement Nature of coordination

Voluntary 

coordination

Risk-Based Capital Standards: Advanced 

Capital Adequacy Framework—Basel II; 

Establishment of a Risk-Based Capital Floor

a

FDIC, Federal 

Reserve, OCC

Yes Jointly issued rule Yes

Fair Credit Reporting Risk-Based Pricing 

Regulations

b

Federal 

Reserve, 

Federal Trade 

Commission

Yes Jointly issued rule N/A

Certain Orderly Liquidation Authority 

Provisions under Title II of the Dodd- Frank 

Wall Street Reform and Consumer 

Protection Act

FDIC Yes Act directs FDIC to consult with 

FSOC. FDIC also consulted 

with the Federal Reserve.

Yes

Business Affiliate Marketing and Disposal of 

Consumer Information

CFTC Yes Act directs CFTC to consult with 

numerous other regulators.

N/A

Provisions Common to Registered Entities CFTC No CFTC consulted with prudential 

regulators

Yes

Debit Card Interchange Fees and Routing Federal Reserve Yes Act directs the Federal Reserve 

to consult, as appropriate, with 

numerous other regulators.

N/A

Whistleblower Incentives and Protection CFTC No CFTC consulted with SEC to 

harmonize the agencies’ 

whistleblower rules.

Yes

Swap Data Repositories: Registration 

Standards, Duties and Core Principles

CFTC Yes Act directs CFTC to coordinate 

with SEC and other prudential 

regulators, and foreign 

regulators as appropriate.

N/A

 

47We primarily relied on Federal Register notices to determine whether coordination took 

place for the rules we reviewed, as the rule releases are supposed to contain the key 

steps agencies took to formulate the rules. Therefore, rules that may have involved 

interagency coordination but did not mention coordination in the Federal Register notices 

are not included in this table. For example, CFTC and SEC issued similar whistleblower 

protection rules; however, only CFTC mentioned interagency coordination in the rule 

release. SEC told us that they had consulted with CFTC on this rulemaking, but did not 

include a discussion of consultation in their rule release because CFTC’s rule had not yet 

been issued. Therefore, only the CFTC rule is included in this table. 
 

Page 26 GAO-13-101 Dodd-Frank Act Regulations

Rulemaking

Responsible 

regulator

Coordination 

requirement Nature of coordination

Voluntary 

coordination

Resolution Plans Required

a

FDIC, Federal 

Reserve

Yes Jointly issued rule N/A

Derivatives Clearing Organization General 

Provisions and Core Principles

CFTC Yes Act directs CFTC to coordinate 

with SEC and other prudential 

regulators, and foreign 

regulators as appropriate. 

N/A

Real-Time Public Reporting of Swap 

Transaction Data

CFTC Yes Act directs CFTC to coordinate 

with SEC and other prudential 

regulators, and foreign 

regulators as appropriate. 

N/A

Swap Data Recordkeeping and Reporting 

Requirements

CFTC Yes Act directs CFTC to coordinate 

with SEC and other prudential 

regulators, and foreign 

regulators as appropriate. CFTC 

also consulted with the Office of 

Financial Research (OFR) and 

the Department of the Treasury.

Yes

Reporting by Investment Advisers to Private 

Funds and Certain Commodity Pool 

Operators and Commodity Trading Advisors 

on Form PF

CFTC, SEC Yes Jointly issued rule N/A

Business Conduct Standards for Swap 

Dealers and Major Swap Participants With 

Counterparties

CFTC Yes Act directs CFTC to coordinate 

with SEC and other prudential 

regulators, and foreign 

regulators as appropriate. CFTC 

also consulted with the 

Department of Labor and 

Internal Revenue Service. 

Yes

Mutual Insurance Holding Company Treated 

as Insurance Company

FDIC Yes Act directs FDIC to consult with 

FSOC in developing this rule.

N/A

Swap Dealer and Major Swap Participant 

Recordkeeping, Reporting, and Duties 

Rules; Futures Commission Merchant and 

Introducing Broker Conflicts of Interest 

Rules; and Chief Compliance Officer Rules 

for Swap Dealers, Major Swap Participants, 

and Futures Commission Merchants

CFTC Yes Act directs CFTC to coordinate 

with SEC and other prudential 

regulators, and foreign 

regulators as appropriate.

N/A

Alternatives to the Use of External Credit 

Ratings in the Regulations of the OCC

OCC No OCC consulted with FDIC Yes

Further Definition of ‘‘Swap Dealer,’’ 

‘‘Security-Based Swap Dealer,’’ ‘‘Major 

Swap Participant,’’ ‘‘Major Security- Based 

Swap Participant’’ and ‘‘Eligible Contract 

Participant’’

CFTC, SEC Yes Jointly issued rule N/A

Calculation of Maximum Obligation 

Limitation

FDIC, Treasury Yes Jointly issued rule, in 

consultation with FSOC

N/A

Source: GAO analysis of the Dodd-Frank Act and the Federal Register. 

Note: The rules are ordered by the date that each rule became effective.
 

Page 27 GAO-13-101 Dodd-Frank Act Regulations

a

Some regulators coordinated with domestic and/or international regulators beyond what was 

required under the Dodd-Frank Act and, in some cases, where coordination was not required. For 

rules marked “not applicable” (N/A), the agencies did not coordinate with any agencies beyond what 

was required.

b

While section 171 of the Dodd-Frank Act did not mandate that the rule establishing a risk-based 

capital floor be jointly issued, it did require that the floor be issued on a consolidated basis. To

address this provision of the act, the federal banking agencies decided to issue a joint rule

Of the 19 regulations that we identified as having interagency 

coordination, we selected three regulations to review in depth and sought 

to cover as many regulators as possible that were required to coordinate 

under the Dodd-Frank Act (see table 4). We examined when, how, and 

the extent to which federal financial regulators coordinated. We also 

examined efforts undertaken by the regulators to avoid conflicts in the 

rulemakings. 

Table 4: Summary of Three Major Rules Reviewed

Rulemaking Description of coordination

Risk-Based Capital Standards: Advanced Capital 

Adequacy Framework—Basel II; Establishment of a 

Risk-Based Capital Floor

The act requires the appropriate federal banking agencies (i.e., FDIC, OCC 

and the Federal Reserve) to establish minimum risk-based capital 

requirements on a consolidated basis for insured depository institutions, 

depository institution holding companies, and nonbank financial companies 

supervised by the Federal Reserve.

Further Definition of ‘‘Swap Dealer,’’ ‘‘Security-Based 

Swap Dealer,’’ ‘‘Major Swap Participant,’’ ‘‘Major 

Security- Based Swap Participant’’ and ‘‘Eligible 

Contract Participant’’

The act directs CFTC and SEC, in consultation with the Federal Reserve, 

jointly to further define the terms ‘‘Swap Dealer,’’ ‘‘Security-Based Swap 

Dealer,’’ ‘‘Major Swap Participant,’’ ‘‘Major Security- Based Swap 

Participant,’’ and ‘‘Eligible Contract Participant.’’

Real-Time Public Reporting of Swap Transaction Data The act directs CFTC to promulgate rules providing for the public availability 

of swap data in real-time to enhance price discovery. The rule introduces 

definitions, processes, entities, and other items relevant to the real-time 

public reporting of swap transaction data.

Source: GAO analysis of information from the Dodd-Frank Act and the Federal Register. 

The regulators held some formal interagency meetings early on in the 

rulemaking process; however, coordination was mostly informal and 

conducted through e-mail, telephone conversations, and one-on-one 

conversations between staff. For example, at the initiation stage of the 

risk-based capital rulemaking, FDIC, OCC, and the Federal Reserve held 

a principal-level meeting to discuss the major issues relating to the 

interpretation of the statutory requirement. After this meeting, staffs 

Review of Select Major 

Rules Highlights 

Similarities and 

Differences in Interagency 

Coordination and the 

Potential for Related Rules 

to Differ Despite 

Coordination 

Most Coordination for the 

Rulemakings Occurred Early in 

the Process and Was Informal 
 

Page 28 GAO-13-101 Dodd-Frank Act Regulations

formed an interagency working group, comprised of staff from each 

agency who, according to Federal Reserve staff, continually have worked

together on numerous capital rules and therefore have a very close 

working relationship. Likewise, agency staffs said that after the initial 

formal meetings on the other rulemakings that we reviewed, coordination 

revolved around informal staff-level discussions. Coordination during the 

proposed rule drafting stage typically was characterized by staff-level 

conversations primarily through telephone calls or e-mails and some faceto-face meetings. Staffs would contact each other as issues arose to work 

out conflicts or differences in agency viewpoints. When issues could not 

be resolved at the staff level, they were escalated to senior management, 

but most issues were resolved and most coordination occurred at the staff 

level throughout the drafting of the proposed rules, according to agency 

staffs. For all three rulemakings reviewed, agency staffs coordinated at 

least weekly through the proposal stage with the frequency of 

coordination escalating as the proposed rule neared issuance. 

After receiving public comments and while preparing the final rule, agency 

staffs told us that they continued to coordinate with each other, but the 

need for and level of interagency coordination varied by rule. For 

instance, OCC, Federal Reserve, and FDIC staffs said that by the time 

they reached the stage of drafting the final risk-based capital rule, 

meetings were less frequent because the group already had worked out 

most of the details. Coordination between CFTC and SEC also decreased 

during this stage of the real-time reporting rulemaking. Conversely, CFTC 

and SEC staffs said that interagency coordination continued to be 

frequent while drafting the final swaps entities rule because after the 

proposed rule was issued some differences in underlying definitions 

remained, such as the definition for “highly leveraged.” The commissions 

used public comments to the proposed rule to help them interpret and 

come to consensus on the definitions. CFTC and SEC staffs met regularly 

in this period to refine drafts, resolve issues, and convene an industry 

roundtable. 

The extent to which agencies coordinated with international regulators 

varied in the three rulemakings that we reviewed. For example, CFTC 

and SEC coordinated with international regulators on swap rulemakings. 

For the real-time reporting rule, CFTC coordinated with foreign regulators, 

such as the Financial Services Authority and the European Commission, 

which provided ideas on data reporting. On the swap entities rule, CFTC 

and SEC staffs said that they participated in numerous conference calls 

and meetings with various international regulators. 

Coordination with International 

Regulators on the Three 

Rulemakings Varied 
 

Page 29 GAO-13-101 Dodd-Frank Act Regulations

In contrast, the banking regulators did not meet with any international 

regulators on the risk-based capital rule. The agency staffs said that they 

were implementing a straightforward statutory provision that required little 

interpretation and little amendment to the existing rules; therefore, staffs 

said they did not need to seek input from international regulators as to 

how to implement U.S. law. Staffs said that for less narrowly scoped 

rules, where regulators have more discretion, they are more proactive in 

reaching out to international regulators. FDIC staff cited, as an example, 

the risk retention rule, for which they reached out to the European Union 

to understand their approach.

48

Regulators who were responsible for the three rulemakings that we 

reviewed said that they tried to identify potential areas of duplication or 

conflict involving the rules. For the risk-based capital rule, the banking 

regulators held discussions on regulatory conflict and duplication and 

concluded that none would be created by this rule. For the swap entity 

rule and the real-time reporting rule, CFTC and SEC identified potential 

areas of conflict, which they were able to address through coordination. 

For example, when developing the real-time reporting rule, CFTC and 

SEC initially had different approaches about what type of entity would be 

in charge of disseminating swap transaction data. SEC proposed that 

only swap data repositories would be required to disseminate real-time 

data, and CFTC initially proposed to require several different entities to do 

so.

 

49

 

48Risk retention rulemaking is being conducted by FDIC, OCC, the Federal Reserve, SEC, 

the U.S. Department of Housing and Urban Development, and the Federal Housing 

Finance Agency, as required by section 941 of the Dodd-Frank Act, but has not yet been 

finalized. Pub. L. No. 111-203, § 941, 124 Stat. 1890 (2010) (codified at 15 U.S.C. § 78o11). 

When CFTC issued its final rule, it changed its approach to mirror 

SEC’s proposal, deciding that only swap data repositories would be 

required to disseminate real-time swap data. Agency staffs said that this 

harmonization should help to minimize the compliance cost burden 

placed on market participants and allow for more efficient operation of 

systems for the public dissemination of swap and security-based swap 

market data. 

49Swap data repositories are new entities created by the Dodd-Frank Act in order to 

provide a central facility for swap data reporting and recordkeeping. Under the act, all 

swaps, whether cleared or uncleared, are required to be reported to registered swap data 

repositories. Pub. L. No. 111-203, § 727, 124 Stat. 1696 (2010) (codified at 7 U.S.C. 

2(a)(13)(G)). 

Regulators Worked to Resolve 

Conflicts but Some Differences 

Remained 
 

Page 30 GAO-13-101 Dodd-Frank Act Regulations

In some areas, differences in rules remained after interagency 

coordination, due to differences in regulatory jurisdiction. In particular, 

while CFTC and SEC reached consensus on the text for the jointly issued 

swap entities rule, the regulators outlined different approaches in certain 

parts of the rule as a result of their regulatory jurisdiction over different 

product sets. For example, some of the language of the definitions for 

“major swap participant” and “major security-based swap participant” 

differs because the agencies each have jurisdiction over different 

products and some of these products have different histories, markets, 

and market sizes, according to CFTC and SEC staff. Also, in the real-time 

reporting rule, CFTC, in its final rule, defined specific data fields to be 

reported, while SEC, in its proposed rule, outlined broad data categories 

and required swap data repositories to develop specific reporting 

protocols. Agency staffs stated that while the approaches were different, 

they were not inconsistent. The key factors the regulators considered 

were whether the rules achieved the policy objectives and whether the 

regulated entities could comply with both agencies’ rules given their 

differences. It was determined that swap data repositories could develop 

data reporting protocols that would comply with both agencies’ rules.

To document and communicate preliminary staff views on certain issues 

to senior management, regulators use term sheets throughout the 

rulemaking process. Although term sheets are primarily internal 

documents, they were shared with staff at other regulators to 

communicate views and elicit comments. These term sheets serve as a 

formal mechanism to help initiate discussions of differences in the 

regulators’ positions. Term sheets generally are drafted internally by staff 

at each agency, shared between or among agency staff, and shared with 

agency principals or senior management. CFTC and SEC created term 

sheets for both the swap entities rule and the real-time reporting rule. 

Conversely, for the risk-based capital rule, the banking regulators did not 

create a term sheet because, according to OCC staff, the statutory 

requirements for this rule were explicit and therefore a term sheet was not 

required. However, staff noted that this was different from a standard 

rulemaking where they typically would draft and share a term sheet.
 

Page 31 GAO-13-101 Dodd-Frank Act Regulations

While a few agencies have made progress on developing policies for 

interagency coordination for their rulemaking, most have not. In 

November 2011, we reported that most of the federal financial agencies

lacked formal policies or procedures to guide their interagency 

coordination in the rulemaking process.50 Federal financial regulators 

informally coordinated on some of the final rules that we reviewed, but 

most of the agencies lacked written policies and procedures to guide their 

interagency coordination. Specifically, seven of nine agencies did not 

have written policies and procedures to facilitate coordination on 

rulemaking.51

Since our November 2011 report, we found that OCC and CFPB have 

further developed guidance on interagency coordination, but the other 

agencies have not. CFPB has developed guidance that outlines the 

agency’s approach to interagency consultation in rulemaking. The 

document generally describes two rounds of consultation when drafting 

the proposed rule and two rounds when addressing comments and 

drafting the final rule. The guidance highlights the points in a rulemaking 

at which staff should reach out to other regulators, the purpose of 

consultation, and the length of time to allow for responses from 

regulators. Similarly, OCC updated its rulemaking policy to include more 

detail on what steps should be taken in coordination and who should be 

involved. 

The written policies and procedures that existed were 

limited in their scope or applicability. The remaining two regulators, FDIC 

and OCC, had rulemaking policies that include guidance on developing 

interagency rules. As we previously reported, documented policies can 

help ensure that adequate coordination takes place, help to improve 

interagency relationships, and prevent the duplication of efforts at a time 

when resources are extremely limited.

In our November 2011 report, we recommended that FSOC work with the 

federal financial regulators to establish formal coordination policies for 

rulemaking that clarify issues, such as when coordination should occur, 

 

50See GAO-12-151. 

51The seven agencies that did not have written policies and procedures were CFPB, 

CFTC, the Federal Reserve, FSOC, NCUA, OFR, and SEC. However, in our November 

2011 report we noted that SEC and CFTC have a memorandum of understanding that 

establishes a permanent regulatory liaison between them and contains procedures to 

facilitate the discussion and coordination of regulatory action on issues of common 

regulatory interest. 

Most Agencies Continue to 

Lack Formal Policies and 

Procedures to Guide 

Interagency Coordination
 

Page 32 GAO-13-101 Dodd-Frank Act Regulations

the process that will be used to solicit and address comments, and what 

role FSOC should play in facilitating coordination. While FSOC has not 

implemented this recommendation, staff told us that they have developed 

coordination processes around specific areas of the Dodd-Frank Act. For 

example, FSOC staff said that they have coordinated closely with FDIC 

on all rulemakings under Title II. In addition, FSOC developed written 

guidance for coordination on rulemakings for enhanced prudential 

standards for bank holding companies with $50 billion or more in total 

consolidated assets and nonbank financial companies designated by 

FSOC for Federal Reserve supervision under sections 165 and 166 of the 

act. However, in a September 2012 report, we noted that a number of 

industry representatives questioned why FSOC could not play a greater 

role in coordinating member agencies’ rulemaking efforts.52 In that report, 

we further noted that the FSOC chairperson, in consultation with the other 

FSOC members, is responsible for regular consultation with the financial 

regulatory entities and other appropriate organizations of foreign 

governments or international organizations. We also reiterated our 

previous recommendation by stating that FSOC should establish formal 

collaboration and coordination policies for rulemaking.

The full impact of the Dodd-Frank Act remains uncertain. Although federal 

agencies continue to implement the act through rulemakings, much work 

remains. For example, according to one estimate, regulators have 

finalized less than half of the total rules that may be needed to implement 

the act.53 Furthermore, sufficient time has not elapsed to measure the 

impact of those rules that are final and effective. As we previously noted, 

even when the act’s reforms are fully implemented, it will take time for the 

financial services industry to comply with the array of new regulations.54

 

52See 

The evolving nature of implementation makes isolating the effects of the 

Dodd-Frank Act on the U.S. financial marketplace difficult. This task is 

made more difficult by the many factors that can affect the financial 

marketplace, including factors that could have an even greater impact 

than the act.

GAO-12-886. 

53For example, the law firm Davis Polk & Wardwell LLP estimates that federal agencies 

will need to issue 398 rules to implement the Dodd-Frank Act but found the agencies had 

finalized 127 of the rules, or nearly 32 percent, as of October 1, 2012.

54See GAO-12-151. 

Impacts of the DoddFrank Act Have Not 

Yet Fully Materialized 

and Remain Uncertain
 

Page 33 GAO-13-101 Dodd-Frank Act Regulations

Recognizing these limitations and difficulties, we developed a 

multipronged approach to analyze current data and trends that might be 

indicative of some of the Dodd-Frank Act’s initial impacts, as institutions 

react to issued and expected rules. First, the act contains provisions that 

serve to enhance the resilience of certain bank and nonbank financial 

companies and reduce the potential for financial distress in any one of 

these companies to affect the financial system and economy. Specifically, 

the Dodd-Frank Act requires the Federal Reserve to impose enhanced 

prudential standards and oversight on bank holding companies with $50 

billion or more in total consolidated assets and nonbank financial 

companies designated by FSOC.

55 We developed indicators to monitor 

changes in certain SIFI characteristics. Although the indicators may be 

suggestive of the act’s impact, our indicators do not identify causal links

between their changes and the act. Further, many other factors can affect 

SIFIs and, thus, the indicators. As new data become available, we expect 

to update and, as warranted, revise our indicators and create additional 

ones to cover other provisions. Second, we used difference-in-difference 

analysis to infer the act’s impact on the provision of credit by and the 

safety and soundness of bank SIFIs. The analysis is subject to limitations, 

in part because factors other than the act could be affecting these 

entities. Third, we analyzed the impact of several major rules that were 

issued pursuant to the Dodd-Frank Act and have been final for around a 

year or more.

The 2007-2009 financial crisis demonstrated that some financial 

institutions, including some nonbank financial companies (e.g., AIG), had 

grown so large, interconnected, complex, and leveraged, that their failure 

could threaten the stability of the U.S. financial system and the global 

economy. Financial institutions, markets, and infrastructure that make up 

the U.S. financial system provide services to the U.S. and global 

economies, such as helping to allocate funds, allowing households and 

businesses to manage their risks, and facilitating financial transactions 

 

55The Dodd-Frank Act does not use the term “systemically important financial institution” 

(SIFI). This term is commonly used by academics and other experts to refer to bank 

holding companies with $50 billion or more in total consolidated assets and nonbank 

financial companies designated by FSOC for Federal Reserve supervision and enhanced 

prudential standards under the Dodd-Frank Act. For purposes of this report, we refer to 

these bank and nonbank financial companies as bank systemically important financial 

institutions (bank SIFI) and nonbank systemically important financial institutions (nonbank 

SIFI), respectively, or collectively as SIFIs. 

Indicators Suggest 

Increased SIFI Resiliency 

and Provide Baselines for 

Future Analysis
 

Page 34 GAO-13-101 Dodd-Frank Act Regulations

that support economic activity. The sudden collapses and near-collapses 

of major financial institutions, including major nonbank financial 

institutions, were among the most destabilizing events of the 2007-2009 

financial crisis. In addition, large, complex financial institutions that are 

perceived to be “too big to fail” can increase uncertainty in periods of 

market turmoil and reinforce destabilizing reactions within the financial 

system. 

According to its legislative history, the Dodd-Frank Act contains 

provisions intended to reduce the risk of failure of a large, complex 

financial institution and the damage that such a failure could do to the 

economy.56 Such provisions include (1) establishing FSOC to identify and 

respond to emerging threats to the stability of the U.S. financial system; 

(2) authorizing FSOC to designate a nonbank financial company for 

Federal Reserve supervision if FSOC determines it could pose a threat to

the financial stability of the United States based on the company’s size, 

leverage, interconnectedness, or other factors; and (3) directing the 

Federal Reserve to impose enhanced prudential standards and oversight 

on bank holding companies with $50 billion or more in total consolidated 

assets (referred to as bank SIFIs in this report) and nonbank financial 

companies designated by FSOC (referred to as nonbank SIFIs in this 

report). The Dodd-Frank Act also is intended to reduce market 

expectations of future federal rescues of large, interconnected, and 

complex firms using taxpayer dollars.57

Some Dodd-Frank Act provisions may result in adjustments to SIFIs’ size, 

interconnectedness, complexity, leverage, or liquidity over time.

Under the act, bank holding 

companies with $50 billion or more in total consolidated assets and 

nonbank financial companies designated by FSOC for Federal Reserve 

supervision are required to develop plans for their rapid and orderly 

resolution. Additionally, FDIC is given new orderly liquidation authority to 

act as a receiver of a troubled financial firm whose failure could threaten 

financial stability so as to protect the U.S. financial system and the wider 

economy. 

58

 

56S. REP. No. 111-176 (2010). 

We 

developed indicators to monitor changes in some of these SIFI 

57S. REP. No. 111-176 (2010). 

58See appendix III for the rulemaking status and summary of SIFI-related provisions 

included in this section. 
 

Page 35 GAO-13-101 Dodd-Frank Act Regulations

characteristics.59 The size and complexity indicators reflect the potential 

for a single company’s financial distress to affect the financial system and 

economy. The leverage and liquidity indicators reflect a SIFI’s resilience 

to shocks or its vulnerability to financial distress. FSOC has not yet 

designated any nonbank financial firms for Federal Reserve 

supervision.

60 As a result, we focus our analysis on U.S. bank SIFIs.61

Our indicators have limitations. For example, the indicators do not identify 

causal links between changes in SIFI characteristics and the act. Rather, 

the indicators track or begin to track changes in the size, complexity, 

leverage, and liquidity of SIFIs over the period since the Dodd-Frank Act 

was passed to examine whether the changes are consistent with the act.

However, other factors—including the economic downturn, international 

banking standards agreed upon by the Basel Committee on Banking 

Supervision (Basel Committee), European debt crisis, and monetary 

policy actions—also affect bank holding companies and, thus, the 

indicators.62

 

59We developed indicators for size, complexity, leverage, and liquidity of SIFIs. However, 

we did not develop indicators for interconnectedness in this report, but plan to do so in 

future reports as we and others learn more about potential ways that financial instability 

can spread across the financial system.

These factors may have a greater effect than the Dodd-Frank 

Act on SIFIs. In addition, some rules implementing SIFI-related provisions 

have not yet been proposed or finalized. Thus, trends in our indicators 

60As of October 31, 2012, FSOC had issued a final rule and interpretative guidance on the

methodology it is using to designate nonbank financial companies for enhanced regulation 

and supervision by the Federal Reserve. According to Treasury officials, a number of firms 

are actively being considered pursuant to the designation process as described in those 

documents. Officials noted that at meetings on September 28 and October 18, 2012, 

FSOC voted to approve the advancement of initial subsets of nonbank financial 

companies to Stage 3, the final stage of evaluation before a proposed determination of 

designation is considered. 

61Our analyses of bank SIFIs include U.S. bank holding companies with total consolidated 

assets of $50 billion or more and foreign bank organizations’ U.S.-based bank holding 

company subsidiaries that on their own have total consolidated assets of $50 billion or 

more. The Federal Reserve’s proposed regulations on enhanced prudential standards do 

not apply to foreign banking organizations, and the Federal Reserve expects to issue a 

separate proposal that would apply the enhanced standards of sections 165 and 166 of 

the act to foreign banking organizations. 77 Fed. Reg. 594 (Jan. 5, 2012).

62The Basel Committee has agreed on a new set of risk-based capital, leverage, liquidity, 

and other requirements for banking institutions (Basel III requirements). Additionally, the 

Financial Stability Board and the Basel Committee have agreed on new capital and other 

requirements applicable to designated globally systemically important banks (G-SIB 

requirements). U.S. banking regulators are in the process of implementing these 

requirements. 
 

Page 36 GAO-13-101 Dodd-Frank Act Regulations

include the effects of these rules only insofar as SIFIs have changed their 

behavior in response to issued rules and in anticipation of expected rules. 

In this sense, our indicators provide a baseline against which to compare 

future trends.

Table 5 summarizes the changes in our bank SIFI indicators. The size 

indicators do not provide a clear trend between the third quarter of 2010 

and the second quarter of 2012. Additionally, we have only one data point 

in the complexity indicator, but our data suggest that the largest bank 

SIFIs generally were more complex organizationally than other bank 

SIFIs. Lastly, the indicators suggest that bank SIFIs, on average, have 

become less leveraged since the third quarter of 2010, and their liquidity 

also appears to have improved. Trends in our leverage and liquidity 

indicators appear to be consistent with an improvement in SIFIs’ 

resilience to shocks. 

Table 5: Summary of Trends in Indicators for U.S. Bank SIFIs, from Third Quarter 2010 through Second Quarter 2012

Characteristic Indicator (italicized) and description of trend

Consistent with decreased, 

no change, or increased 

spillover effects or 

resilience?

Size – Size captures the amount of financial 

services or financial intermediation that a bank 

holding company provides.

The number of large bank SIFIs remained the 

same, and the number of other bank SIFIs

decreased slightly.

Median assets for large bank SIFIs and median 

assets for other bank SIFIs increased slightly.

a

The median market share (measured in assets) 

for bank SIFIs remained relatively constant.

a, b

Consistent with no change in 

spillover effects

b

Interconnectedness – Interconnectedness 

captures direct or indirect linkages between 

financial institutions that may transmit distress 

from one institution to another. 

None N/A c

Complexity – Operational complexity may reflect 

an institution’s diverse lines of business and 

locations in which the institution operates.

The number of legal entities of large bank SIFIs

was large relative to other bank SIFIs as of 

October 2012.

Almost all large bank SIFIs have a high number 

or percentage of legal entities located outside of 

the United States, and the number of countries 

where the foreign entities are located is also high.

a 

N/A
 

Page 37 GAO-13-101 Dodd-Frank Act Regulations

Characteristic Indicator (italicized) and description of trend

Consistent with decreased, 

no change, or increased 

spillover effects or 

resilience?

Leverage – Leverage can be defined broadly as 

the ratio between some measure of risk exposure 

and capital that can be used to absorb 

unexpected losses from the exposure. 

Traditionally, it has referred to the use of debt, 

instead of equity, to fund an asset and been 

measured by the ratio of total assets to equity on 

the balance sheet.

The median tangible common equity as a percent 

of total assets for bank SIFIs increased slightly.b

The median tangible common equity as a percent 

of risk-weighted assets for bank SIFIs increased 

slightly.

 

b

Consistent with increased 

resilience

 

Liquidity – Liquidity represents the ability of an 

institution to fund its assets and meet its 

obligations as they become due.

The median short-term liabilities as a percent of 

total liabilities for bank SIFIs decreased.b

The median liquid assets as a percent of shortterm liabilities for bank SIFIs increased.

Consistent with increased 

resilience

b

Sources: GAO analysis of SNL Financial data and Federal Reserve Board data from the National Information Center. 

a

Large bank SIFIs are those with $500 billion or more in assets. Other bank SIFIs are those with 

assets between $50 billion and $500 billion.

b

To calculate the median measures, we calculated the relevant indicator measure for each bank 

holding company, and then reported the median for large bank SIFIs, the median for other bank 

SIFIs, the median for non-SIFI banks, or the median for the entire group. c

The three size indicators generally did not show a clear change in the 

size of U.S. bank SIFIs between 2010 and 2012. In 2009, the Federal 

Reserve chairman noted that regulators have strong incentives in a crisis 

to prevent the failure of a large, highly interconnected financial firm 

because of the risks such a failure would pose to the financial system and 

the broader economy.

We plan to develop indicators for interconnectedness in future reports.

63

 

63Ben S. Bernanke, “Financial Reform to Address Systemic Risk,” (Speech to the Council 

on Foreign Relations, Washington, D.C., Mar. 10, 2009). 

He also noted that market participants’ belief that 

a particular firm is considered too big to fail has many undesirable effects, 

such as reducing market discipline and providing an artificial incentive for 

firms to grow to be perceived as too big to fail. The Dodd-Frank Act 

contains provisions that may discourage or inhibit large financial 

institutions (including those we refer to as SIFIs) from increasing their 

size. For example, the act’s $50 billion-asset threshold for determining 

which bank holding companies are subject to enhanced regulation by the 

Federal Reserve may discourage certain institutions from increasing or 

encourage others to reduce their assets to avoid such regulation. Also, 

some provisions and related rules allow or require regulators to limit, in 

certain circumstances, the size of a SIFI by imposing restrictions on its 

growth, activities, or operations. Although implicit or explicit limits on the 

SIFI Size
 

Page 38 GAO-13-101 Dodd-Frank Act Regulations

size of a financial institution may prevent the institution from growing so 

large that it is perceived by the market as too big to fail, such limits also 

may prevent the institution from achieving economies of scale and 

benefiting from diversification.64

We developed three indicators of size. The first indicator tracks the 

number of bank SIFIs. The second indicator measures a SIFI’s size 

based on the total assets on its balance sheet. The third indicator 

measures the extent to which industry assets are concentrated among 

the individual SIFIs, reflecting a SIFI’s size relative to the size of the 

industry. A limitation of these indicators is that they do not include an 

institution’s off-balance sheet activities and thus may understate the 

amount of financial services or intermediation an institution provides. 

Furthermore, asset size alone is not an accurate determinant of systemic 

risk, as an institution’s systemic risk significance also depends on other 

factors, such as its complexity and interconnectedness. 

As shown in figure 1, seven U.S. bank SIFIs had more than $500 billion in 

total consolidated assets (referred to as large bank SIFIs in this report) in 

the third quarter of 2010 and in the second quarter of 2012.65

 

64See, for example, Chairperson of the FSOC, Study of the Effects of Size and Complexity 

of Financial Institutions on Capital Market Efficiency and Economic Growth Pursuant to 

Section 123 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 

(Washington, D.C.: January 2011).

The large 

bank SIFIs were considerably larger than the other bank SIFIs. 

65In figure 1, bank SIFIs are bank holding companies with $50 billion or more in total 

consolidated assets as of the second quarter of 2012. Figure 1 shows assets for these 

bank SIFIs as of the third quarter of 2010 and the second quarter of 2012. 
 

Page 39 GAO-13-101 Dodd-Frank Act Regulations

Figure 1: Total Assets of U.S. Bank SIFIs, as of the Third Quarter of 2010 and Second Quarter of 2012 

Note: Bank SIFIs are U.S. bank holding companies with $50 billion or more in total consolidated 

assets. Bank SIFIs are ranked by assets as of the second quarter of 2012, with 1 being the bank SIFI 

with the most assets and 34 being the bank SIFI with the least assets. The figure shows assets for 

these bank SIFIs as of the third quarter of 2010 and the second quarter of 2012 adjusted for inflation 

and measured in billions of constant 2012 Q2 dollars. 
 

Page 40 GAO-13-101 Dodd-Frank Act Regulations

The three indicators show that the number and size of U.S. bank SIFIs 

have remained largely the same over the past 2 years and that several 

SIFIs dominate the market. 

• Table 6 shows that the total number of large U.S. bank SIFIs has 

remained at 7 and the total number of other bank SIFIs decreased 

from 29 to 27 between 2010 and the second quarter of 2012. Over the 

same period, the median assets for large bank SIFIs and other bank 

SIFIs increased slightly.

Table 6: Number and Median Size of U.S. Bank Holding Companies and U.S. Bank SIFIs, at the End of Calendar Year Unless 

Otherwise Noted (Assets in Billions of 2012 Q2 Dollars)

Total bank holding companies Number

2010 2011 2012 Q2

1,006 1,014 1,028

Median assets $1.0 $0.9 $0.9 

Total SIFIs Number 36 34 34

Median assets $155.7 $177.3 $162.6 

Large SIFIs Number 7 7 7 

Median assets $1,294.3 $1,325.5 $1,336.2 

Other SIFIs Number 29 27 27

Median assets $114.2 $128.2 $117.5 

Non-SIFIs Number 970 980 994

Median assets $0.9 $0.9 $0.9 

Source: GAO analysis of SNL Financial data.

Note: Median assets are adjusted for inflation and are measured in billions of constant 2012 Q2 

dollars. We define large bank SIFIs are those with assets of $500 billion or more. Other bank SIFIs 

are those with assets between $50 billion and $500 billion. Non-SIFI bank holding companies are 

those with assets less than $50 billion but greater than $500 million. 

• Figure 2 shows that the median market share for large bank SIFIs 

was about 7.7 percent of the industry’s total assets at the end of the 

second quarter of 2012, roughly the same market share as in the third 

quarter of 2010. The median market share for other bank SIFIs 

hovered between 0.7 percent and 0.8 percent of the industry’s total 

assets during that time frame.
 

Page 41 GAO-13-101 Dodd-Frank Act Regulations

Figure 2: Median Market Share for U.S. Bank Holding Companies by Size, from First Quarter of 2006 through Second Quarter 

of 2012

Note: To calculate the median market shares, we calculated the market share for each bank holding 

company, and then reported the median market share for large bank SIFIs, the median for other bank 

SIFIs, and the median for non-SIFI banks.

Our complexity measure indicates that large U.S. bank SIFIs are likely 

relatively more complex than other U.S. bank SIFIs. Interconnectedness 

and complexity of operations or organizational structure are related 

concepts. Interconnectedness refers to linkages among financial 

companies that may transmit distress from one company to another. 

Operational complexity, which reflects a company’s diverse lines of 

business and locations of operation, may make interconnected firms 

harder to resolve in case they fail. According to FSOC, in the years 

preceding the crisis, the structure of many financial institutions had 

become complex and interconnections among financial institutions were 

poorly understood. The belief that highly interconnected and complex 

companies were more likely to receive government support during a 

financial crisis promoted moral hazard problems for such institutions.66

 

66FSOC, 2011 Annual Report (Washington D.C.: July, 2011), and FSOC, 2012 Annual 

Report, (Washington, D.C.: July, 2012). 

Complexity of SIFIs
 

Page 42 GAO-13-101 Dodd-Frank Act Regulations

Some Dodd-Frank Act provisions may result in increased transparency 

regarding the interconnectedness and complexity of SIFIs or in reductions 

in their interconnections and complexity. For example, Title II provides 

FDIC with new authority to resolve nonviable financial firms that pose a 

significant threat to U.S. financial stability. Moreover, section 165 of the 

act requires bank holding companies with $50 billion or more in total 

consolidated assets and nonbank financial companies designated by 

FSOC for Federal Reserve supervision to submit to regulators periodic

resolution plans that describe a company's strategy for rapid and orderly 

resolution in the event of material stress or failure.

67 FSOC has 

recommended that firms use the development of the plans as an 

opportunity to reduce organizational complexity, and some regulators and 

experts have noted that the development of the resolution plans may lead 

some SIFIs to simplify their operations.68

Our indicators of complexity are the number of legal entities of bank 

SIFIs, the percentage of foreign legal entities of large SIFIs, and the 

number of countries where they are located. An institution’s operational 

complexity may reflect an institution’s diverse lines of business and 

locations in which the institution operates, which are reflected partly

through its various legal structures. Consequently, a SIFI with a large 

number of legal entities—particularly foreign ones operating in different 

countries under different regulatory regimes—may be more difficult to 

resolve than a SIFI with fewer legal entities in fewer countries. One 

limitation of our indicator is that it does not provide information on the 

relative complexity of SIFIs resulting directly from their various lines of 

business. Additionally, changes in the operational complexity of a SIFI 

may be reflected in our indicators only insofar as they result in a change 

in the number of legal entities.

 

67Pub. L. No. 111-203, § 165 (codified at 12 U.S.C. § 5365). The Federal Reserve and 

FDIC’s final rule requiring resolution plans can be found at 76 Fed. Reg. 67,323 (Nov. 1, 

2011). Additionally, FDIC issued a related final rule requiring resolution plans from insured 

depository institutions with $50 billion or more in total assets. While this rule does not 

implement a Dodd-Frank provision, FDIC intends to use these plans to evaluate potential 

loss severity at these institutions and enable the agency to perform its resolution functions 

most efficiently. 77 Fed. Reg. 3075 (Jan. 23, 2012).

68If the regulators find a SIFI’s resolution plan to be deficient, they may place restrictions 

on the growth, activities, or operations of the SIFI and ultimately require the SIFI to divest 

certain assets or operations to facilitate an orderly resolution. 
 

Page 43 GAO-13-101 Dodd-Frank Act Regulations

The complexity indicators show that large U.S. bank SIFIs have a 

relatively large number of legal entities compared with other U.S. bank 

SIFIs and that they operate in various countries, suggesting that they may 

be more complex. 

• Figure 3 shows that 6 of 7 large bank SIFIs had more than 2,300 legal 

entities, with two of them having almost 7,000 and 11,000. The 

median number of legal entities for large SIFIs was 4,160, while the 

median for the remaining 27 bank SIFIs was 109. Within this group, 

the maximum number of legal entities for a bank holding company 

was 787, but 21 of the 27 bank holding companies had less than 200 

legal entities.
 

Page 44 GAO-13-101 Dodd-Frank Act Regulations

Figure 3: Total Legal Entities of U.S. Bank SIFIs, as of October 23, 2012

Note: Bank SIFIs are ranked by assets as of the second quarter of 2012, with 1 being the bank SIFI 

with the most assets and 34 being the bank SIFI with the least assets. 

• Table 7 shows that almost all large U.S. bank SIFIs have a high 

number or percentage of legal entities located outside of the United 

States and that these legal entities operate in numerous different 
 

Page 45 GAO-13-101 Dodd-Frank Act Regulations

countries. For example, bank SIFI 3, 5, and 7 all have thousands of 

foreign legal entities operating in 81, 60, and 55 different countries, 

respectively. 

Table 7: Foreign Legal Entities of Large U.S. Bank SIFIs, as of October 22, 2012

Bank SIFI ranking

Total number 

of legal entities

Number and percent 

of foreign legal entities

Number of countries where 

foreign entities are located

Bank SIFI 1 4,144 777 (19%) 51

Bank SIFI 2 2,559 656 (26%) 47

Bank SIFI 3 2,308 1,239 (54%) 81

Bank SIFI 4 4,666 227 (5%) 27

Bank SIFI 5 10,974 5,697 (52%) 60

Bank SIFI 6 232 188 (81%) 37

Bank SIFI 7 7,039 3,927 (56%) 55

Source: GAO analysis of National Information Center data maintained by the Federal Reserve.

Note: Large bank SIFIs are those with assets of $500 billion or more. Bank SIFIs are ranked by 

assets as of the second quarter of 2012, with 1 being the bank SIFI with the most assets.

Unlike size, leverage, or liquidity measures, interconnectedness 

measures are a relatively new concept, and academics are developing 

ways to capture the various types of interconnectedness that may lead to 

financial instability.69

 

69Treasury’s Office of Financial Research (OFR) is required to develop and maintain 

metrics and reporting systems for risks to financial stability. 12 U.S.C. § 5344(c)(1)(A). 

OFR has begun to catalogue and analyze these measures. See Office of Financial 

Research, 2012 Annual Report (Washington, D.C.: July 2012). 

For this report, we did not develop indicators for 

interconnectedness but expect to do so in the future. The Financial 

Stability Board (FSB), with the help of the Basel Committee, has 

designated eight U.S bank holding companies, including the largest 

seven bank SIFIs, as globally systemically important banks (G-SIB), 

largely based on its assessment of the companies’ interconnectedness 
 

Page 46 GAO-13-101 Dodd-Frank Act Regulations

and complexity.70 The Basel Committee’s G-SIB designation process 

uses a variety of quantitative indicators to rate each global bank holding 

company on its size, interconnectedness, global cross-jurisdictional 

activity, complexity, and availability of substitutes or financial institution 

infrastructures for the services produced. As we work to develop 

interconnectedness indicators, we will monitor the status of the G-SIB 

designation process.

71

Our leverage indicators show that U.S. bank SIFIs have decreased their 

leverage between 2010 and the second quarter of 2012, which may 

suggest that the average U.S. bank SIFI, all else equal, has become 

more resilient to shocks since 2010. Leverage generally refers to the use 

of debt, instead of equity, to fund an asset, but can be defined more 

broadly as the ratio between some measure of risk exposure and capital 

that can be used to absorb unexpected losses from the exposure. 

According to federal regulators, the recent financial crisis exposed 

significant weaknesses in the regulatory capital requirements for large 

banking companies. Specifically, the amount and quality of capital held by 

many large, complex banking companies during the crisis proved 

inadequate to cover the companies’ risks. 

 

To address weaknesses in capital requirements, federal banking 

regulators are implementing reforms under the Dodd-Frank Act and the 

Basel Committee that require better capitalization; that is, less leverage 

 

70G-SIBs are banks considered by the Financial Stability Board (FSB) to be of such size, 

market importance, and global interconnectedness that their distress or failure would 

cause significant dislocation in the global financial system and adverse economic 

consequences across a range of countries. FSB was established in April 2009 to 

coordinate at the international level the work of national financial authorities and 

international standard setting bodies and to develop and promote the implementation of 

effective regulatory, supervisory and other financial sector policies in the interest of 

financial stability. In 2010, FSB proposed a policy framework for addressing the systemic 

and moral hazard risks associated with global SIFIs, which includes requirements for 

resolution planning and additional loss absorption (i.e., capital surcharges) for global 

SIFIs. 

71In November 2011, FSB identified 29 G-SIBs and indicated it would update this list 

annually each November. FSB updated this list on November 1, 2012. The updated list 

contains 28 G-SIBs; the same eight U.S. bank SIFIs were designated as G-SIBs in 2011 

and 2012. Additionally, on November 1, 2012, FSB allocated each G-SIB into a bucket 

corresponding to its different levels of capital surcharge. FSB has not yet identified any 

nonbank G-SIFIs. 

SIFI Leverage
 

Page 47 GAO-13-101 Dodd-Frank Act Regulations

and higher quality capital.72 These reforms may cause SIFIs to reduce 

their leverage.73 For example, as part of its proposed enhanced prudential 

standards for bank holding companies with $50 billion or more in total 

consolidated assets and nonbank financial companies designated by 

FSOC, the Federal Reserve would require all of these companies to 

submit annual capital plans, conduct stress tests, and hold sufficient 

capital to better ensure that the firms can survive during periods of 

stress.74 In addition, the Federal Reserve plans to propose a risk-based 

capital surcharge on at least some SIFIs that is based on the capital 

surcharge for G-SIBs.75

Although there are many ways to measure leverage, we use two 

measures: (1) tangible common equity as a percent of total assets, and 

(2) tangible common equity as a percent of risk-weighted assets.

 

76

 

72As mentioned earlier, the Basel Committee has agreed on a new set of risk-based 

capital, leverage, liquidity, and other requirements for banking institutions (Basel III 

requirements). Additionally, the Financial Stability Board and the Basel Committee have 

agreed on new capital and other requirements applicable to designated globally

systemically important banks (G-SIB requirements). U.S. banking regulators are in the 

process of implementing these requirements. 

The 

two indicators differ, in part because total risk-weighted assets reflect 

some of an institution’s off-balance sheet activity but total assets do not. 

We focus on tangible common equity, because it most closely 

approximates the amount of capital available to absorb losses in asset 

values in the short term. A limitation of both indicators is that they may not 

fully reflect an institution’s exposure to risk. Total assets do not reflect an 

institution’s risk exposure from off-balance sheet activities and generally 

73For example, some of the proposed Basel III reforms are expected to impose tighter or, 

in some cases, new capital and leverage requirements on U.S. banking institutions. 

7477 Fed. Reg. 594 (Jan. 5, 2012). The proposed regulations require all SIFIs to comply 

with any regulations adopted by the Federal Reserve relating to capital plans and stress 

tests. The proposal would apply existing capital plan requirements for large bank holding 

companies to nonbank SIFIs. Final regulations adopted by the Federal Reserve require 

banks with more than $50 billion in total assets to develop and submit annual capital 

plans. 12 C.F.R. § 225.8.

7577 Fed. Reg. 594 (Jan. 5, 2012). Also see, Basel Committee on Banking Supervision, 

Global Systemically Important Banks: Assessment Methodology and the Additional Loss 

Absorbency Requirement (Basel, Switzerland, November 2011).

76Tangible common equity subtracts intangible assets, goodwill, and preferred stock 

equity from a company’s total equity. Risk-weighted assets are on- and off-balance sheet 

assets adjusted for certain characteristics that may be associated with risk. 
 

Page 48 GAO-13-101 Dodd-Frank Act Regulations

treat all assets as equally risky. The calculation of risk-weighted assets is 

designed to reflect differences in risk, but the weights assigned to the 

assets may not fully reflect the risk exposure associated with those 

assets, for example, because assets in broad categories of loans all 

receive the same risk weight. 

Both indicators show that U.S. bank SIFIs are less leveraged:

• Figure 4 shows that SIFIs’ median tangible common equity as a 

percent of total assets has increased from the third quarter of 2010 to 

the second quarter of 2012, continuing an upward trend since the 

beginning of 2009.

Figure 4: Median Tangible Common Equity as a Percent of Total Assets for U.S. Bank Holding Companies by Size, from First 

Quarter of 2006 through Second Quarter of 2012 

Note: To calculate median tangible common equity as a percent of assets, we calculated this 

percentage for each bank holding company, and then reported the median for large bank SIFIs, the 

median for other bank SIFIs, and the median for non-SIFI banks.

• Figure 5 shows that SIFIs’ median tangible common equity as a 

percent of risk-weighted assets, which include off-balance sheet 

activity, has also increased from the third quarter of 2010 to the 

second quarter of 2012, continuing an upward trend since the middle 

of 2009.
 

Page 49 GAO-13-101 Dodd-Frank Act Regulations

Figure 5: Median Tangible Common Equity as a Percent of Risk-Weighted Assets for U.S. Bank Holding Companies by Size, 

from First Quarter of 2006 through Second Quarter of 2012 

Note: To calculate median tangible common equity as a percent of risk-weighted assets, we 

calculated this percentage for each bank holding company, and then reported the median for large 

bank SIFIs, the median for other bank SIFIs, and the median for non-SIFI banks.

Our indicators suggest that U.S. bank SIFIs have improved their liquidity, 

which may indicate that they, on average, have become more resilient to 

shocks since 2010. Liquidity represents the ability of a financial institution 

to fund its assets and meet its obligations as they become due. Liquidity 

risk is the risk of not being able to obtain funds at a reasonable price 

within a reasonable time period to meet obligations as they become due. 

According to Federal Reserve staff, the 2007-2009 financial crisis 

illustrated that under strained market conditions, sources of liquidity can 

quickly disappear, and firms may be unable to meet their obligations, 

potentially leading to insolvency. As with capital and leverage 

requirements, the Dodd-Frank Act and Basel III contain reforms that 

address liquidity risk and may result in improvements in the liquidity of 

SIFI Liquidity
 

Page 50 GAO-13-101 Dodd-Frank Act Regulations

SIFIs.

77 For example, as part of the enhanced prudential standards for

bank holding companies with $50 billion or more in total consolidated 

assets and nonbank financial companies designated by FSOC for Federal 

Reserve supervision, the Federal Reserve has proposed imposing 

liquidity risk management standards that require company-run liquidity 

stress tests and a contingency funding plan.78 The proposed regulations 

also require a liquidity buffer to meet projected cash outflows. In addition, 

the Federal Reserve plans to propose liquidity requirements on at least

some SIFIs based on Basel III’s liquidity requirements, as implemented in 

the United States.

79

We developed two indicators to analyze changes in SIFI liquidity: (1) 

short-term liabilities as a percent of total liabilities and (2) liquid assets as 

a percent of short-term liabilities.

 

80

 

77As mentioned earlier, the Basel Committee has agreed on a new set of risk-based 

capital, leverage, liquidity, and other requirements for banking institutions (Basel III 

requirements). Additionally, the Financial Stability Board and the Basel Committee have 

agreed on new capital and other requirements applicable to designated globally

systemically important banks (G-SIB requirements). U.S. banking regulators are in the 

process of implementing these requirements. 

Short-term liabilities are balance sheet 

obligations due within 1 year; an institution’s short-term liabilities as a 

7877 Fed. Reg. 594 (Jan. 5, 2012). Liquidity risk management standards would, among 

other things, require a SIFI to project cash flow needs over various time horizons, stress 

test the projections at least monthly, and maintain a contingency funding plan that 

identifies potential sources of liquidity strain and alternative sources of funding. The size of 

the required liquidity buffer is based on cash flow projections and liquidity stress testing 

and would require a SIFI to continuously maintain a liquidity buffer sufficient to meet 

projected net cash outflows for 30 days over a range of liquidity stress scenarios.

7977 Fed. Reg. 594 (Jan. 5, 2012). The Basel III liquidity requirements include the liquidity 

coverage ratio and the net stable funding ratio. The liquidity coverage ratio would impose 

a liquidity buffer to meet expected 30-day net cash outflows under various stress 

scenarios. The net stable funding ratio would establish a floor for stable funding over a 1 

year horizon to ensure that long-term assets are funded with at least a minimum amount 

of stable liabilities. See Basel Committee on Banking Supervision, Basel III: International 

Framework for Liquidity Risk Measurement, Standards, and Monitoring (Basel, 

Switzerland, December 2010).

80We measure short-term liabilities as the sum of federal funds purchased and repurchase 

agreements, trading liabilities (less derivatives with negative fair value), other borrowed 

funds, deposits held in foreign offices, and large time deposits held in domestic offices, 

where large time deposits are defined as time deposits greater than $100,000 prior to 

March 2010 and as time deposits greater than $250,000 in and after March 2010. We 

measure liquid assets as the sum of cash and balances due from depository institutions, 

securities (less pledged securities), federal funds sold and reverse repurchases, and 

trading assets.
 

Page 51 GAO-13-101 Dodd-Frank Act Regulations

percent of total liabilities are a measure of its need for liquidity. Liquid 

assets can easily be sold without affecting their price and, thus, can be 

easily converted to cash to cover debts that come due. Accordingly, liquid 

assets as a percent of an institution’s short-term liabilities are a measure 

of access to liquidity. For example, if this percentage is under 100 

percent, the institution does not have sufficient access to liquidity and is 

unlikely to have enough liquid assets to cover its short-term debt. A 

limitation of both of these indicators is that they do not include off-balance 

sheet liabilities, such as callable derivatives or potential derivativesrelated obligations. The second indicator also does not include offbalance sheet liquid assets, such as short-term income from derivative 

contracts.81

Both liquidity indicators suggest that U.S. bank SIFIs have improved their 

liquidity since the third quarter of 2010. The figures also show that large 

bank SIFIs held relatively more short-term liabilities but also relatively 

more liquid assets to cover such liabilities than other bank SIFIs. 

 

• Figure 6 shows that median short-term liabilities as a percent of total 

liabilities declined from the third quarter of 2010 through the second 

quarter of 2012 for both large and other SIFIs. 

 

81Because these limitations affect both the numerator and the denominator of our 

indicators, we cannot determine whether the exclusion of off-balance sheet items results 

in an under- or an overstatement of an institution’s liquidity need and access. 
 

Page 52 GAO-13-101 Dodd-Frank Act Regulations

Figure 6: Median Short-Term Liabilities as a Percent of Total Liabilities for U.S. Bank Holding Companies by Size, from First 

Quarter of 2006 through Second Quarter of 2012 

Note: To calculate median short-term liabilities as a percent of total liabilities, we calculated this 

percentage for each bank holding company, and then reported the median for large bank SIFIs, the 

median for other bank SIFIs, and the median for non-SIFI banks.

• Figure 7 shows that median short-term (or liquid) assets as a percent 

of short-term liabilities increased for both large and other SIFIs during 

the same period.
 

Page 53 GAO-13-101 Dodd-Frank Act Regulations

Figure 7: Median Liquid Assets as a Percent of Short-term Liabilities for U.S. Bank Holding Companies by Size, from First 

Quarter of 2006 through Second Quarter of 2012

Note: To calculate median liquid assets as a percent of short-term liabilities, we calculated this 

percentage for each bank holding company, and then reported the median for large bank SIFIs, the 

median for other bank SIFIs, and the median for non-SIFI banks.

According to our regression analysis, the Dodd-Frank Act has been 

associated with minimal increases in the cost of credit provided by U.S. 

bank SIFIs and an increase in the safety and soundness of the SIFIs.82

 

82See appendix IV for more information on our econometric analysis.

As we have noted, the Dodd-Frank Act requires the Federal Reserve to 

impose a variety of regulatory reforms on SIFIs, including enhanced riskbased capital, leverage, and liquidity requirements. These reforms may 

affect not only the safety and soundness of bank SIFIs but also the cost 

and availability of credit provided by bank SIFIs. Although capital and 

leverage requirements may help reduce the probability of a firm failing 

New Requirements for 

Bank SIFIs Initially Appear 

to Have Affected Minimally 

the Cost of SIFI-Provided 

Credit and Enhanced 

SIFIs’ Safety and 

Soundness 
 

Page 54 GAO-13-101 Dodd-Frank Act Regulations

and promote financial stability, they could cause firms to raise lending 

rates and also limit firms’ ability to provide credit, especially during a 

crisis. Similarly, while stricter liquidity requirements may help reduce the 

probability of a firm failing and promote financial stability, companies 

could respond to these requirements by increasing lending spreads to 

offset lower yields on assets or longer maturities on liabilities. To the 

extent that they increase the cost and reduce the availability of credit, 

these reforms may lead to reduced output and economic growth.83

As mentioned earlier, the Dodd-Frank Act subjects some bank holding 

companies to enhanced oversight and regulation but not other bank 

holding companies. Specifically, the act requires the Federal Reserve to 

impose a number of enhanced prudential standards on bank holding 

companies with total consolidated assets of $50 billion or more. These 

prudential standards must include enhanced risk-based capital and 

leverage requirements, enhanced liquidity requirements, enhanced riskmanagement and risk committee requirements, single-counterparty credit 

limits, stress tests, and a debt-to-equity limit for bank holding companies 

that FSOC has determined pose a grave threat to the stability of the 

financial system if the imposition of such a limit is necessary to mitigate 

the risk.

84 The Federal Reserve published proposed rules to implement 

these requirements on January 5, 2012.85

 

83See, for example, Basel Committee on Banking Supervision, An Assessment of the 

Long Term Economic Impact of Stronger Capital and Liquidity Requirements (Basel, 

Switzerland, August 2010), and Basel Committee on Banking Supervision and Financial 

Stability Board, Assessing the Macroeconomic Impact of the Transition to Stronger Capital 

and Liquidity Requirements (Basel, Switzerland, August 2010). In a forthcoming report, 

we broadly discuss potential benefits and costs of the Dodd-Frank Act, including 

provisions related to stricter capital and leverage requirements.

 Under the proposed rules, 

bank holding companies with $50 billion or more in total consolidated

assets would be subject to the enhanced prudential standards beginning 

on the first day of the fifth quarter following the effective date of a final 

rule. On the other hand, bank holding companies with less than $50 

billion in total consolidated assets are not subject to the Board’s 

enhanced prudential standards. As a result, we can compare funding 

costs, capital adequacy, asset quality, earnings, and liquidity for bank 

SIFIs and non-SIFI bank holding companies before and after the 

implementation of the enhanced prudential requirements. All else being 

84For more information on these and other provisions affecting SIFIs see appendix III. 

8577 Fed. Reg. 594 (Jan. 5, 2012).
 

Page 55 GAO-13-101 Dodd-Frank Act Regulations

equal, the difference in the comparative differences is the inferred effect 

of the Dodd-Frank Act on bank SIFIs. While many of the SIFI-related 

rulemakings have yet to be implemented, our estimates are suggestive of 

the initial effects of the Dodd-Frank Act on bank SIFIs and provide a 

baseline against which to compare future results.86

Our estimates suggest that the Dodd-Frank Act is associated with an 

increase in U.S. bank SIFIs’ funding costs in the second quarter of 2012, 

but it is not associated with either an increase or decrease in other 

quarters (table 8). From the third quarter of 2010 to the second quarter of 

2012, bank SIFIs’ funding cost ranged from about 0.02 percentage points 

lower to about 0.05 percentage points higher than it otherwise would have 

been since the Dodd-Frank Act was enacted. However, the estimates are 

not individually statistically significant for quarters other than the second 

quarter of 2012. These estimates suggest that the act’s new requirements 

for SIFIs have had little effect on U.S. bank SIFIs’ funding costs, at least 

until recently. To the extent that the cost of credit provided by bank SIFIs 

is a function of their funding costs, the new requirements for SIFIs are 

likely to have had little effect on the cost of credit to date.

 

86Bank SIFIs are currently required to comply with some of the enhanced prudential 

standards proposed on January 5, 2012 by the Federal Reserve. For example, the 

January 5, 2012 proposal would have nonbank financial companies designated by FSOC 

for Federal Reserve supervision be subject to the Federal Reserve’s capital plan rule, 

which became effective for bank SIFIs on December 30, 2011. 76 Fed. Reg. 74,631 (Dec. 

1, 2011). Additionally, on November 1, 2011, the Federal Reserve and FDIC finalized a 

rule implementing section 165(d) of the act which requires resolution plans from bank 

holding companies with $50 billion or more in total assets and nonbank financial 

companies designated by FSOC for Federal Reserve supervision. 76 Fed. Reg. 67,323 

(Nov. 1, 2011). Bank SIFIs with $250 billion or more in total nonbank assets were required 

to submit these plans on July 1, 2012. See appendix III for more information on the status 

of the enhanced prudential standards required under the Dodd-Frank Act. 
 

Page 56 GAO-13-101 Dodd-Frank Act Regulations

Table 8: Estimated Changes in U.S. Bank SIFIs’ Funding Cost and Measures of Safety and Soundness Associated with the 

Dodd-Frank Act, from Third Quarter 2010 through Second Quarter 2012

Variable Measured as

Range of statistically 

significant estimated 

changes (percentage 

points)

Quarters estimated 

changes are statistically 

significant

Cost of credit indicator

Funding cost Interest expense as a percent of 

interest-bearing liabilities

0.05 2012 Q2

Safety and soundness indicators

Capital adequacy Tangible common equity as a percent of 

total assets

1.16 to 1.66 2010 Q3-2012 Q2

Tangible common equity as a percent of 

risk-weighted assets

1.70 to 2.24 2010 Q3-2012 Q2

Asset quality Performing assets as a percent of total 

assets

1.04 to 1.32 2010 Q3-2012 Q2

Earnings Earnings as a percent of total assets 0.10 to 0.24 2010 Q3-2011 Q3

Liquidity Liquid assets as a percent of volatile 

liabilities

No statistically significant 

estimated changes

None

Stable liabilities as a percent of total 

liabilities

2.82 to 5.67 2010 Q3-2012 Q2

Source: GAO analysis of data from the Federal Reserve and SNL Financial.

Notes: We analyzed data for bank holding companies from the first quarter of 2006 through the 

second quarter of 2012. We estimated the effects of the new SIFI requirements on bank SIFIs by 

regressing the variables listed in the table on indicators for each bank holding company, indicators for 

each quarter, indicators for whether a bank holding company is a SIFI for each quarter from the third 

in 2010 through the second in 2012, and other variables controlling for size, foreign exposure, 

securitization income, other nontraditional income, and participation in the Troubled Asset Relief 

Program. Estimated changes are the coefficients on the indicators for whether a bank holding 

company is a SIFI in each quarter from the third in 2010 through the second in 2012. We used t-tests 

to assess whether the coefficient on the SIFI indicator for a specific quarter was significant at the 5 

percent level. For more information on our methodology, see appendix IV.

Table 8 also shows that the Dodd-Frank Act is associated with 

improvements in most measures of U.S. bank SIFIs’ safety and 

soundness. Bank SIFIs appear to be holding more capital than they 

otherwise would have held in every quarter since the Dodd-Frank Act was 

enacted. The quality of assets on the balance sheets of bank SIFIs also 

seems to have improved since the Dodd-Frank Act was enacted. The act 

is associated with higher earnings for bank SIFIs in the first four quarters 

after the act’s enactment. It is also associated with improved liquidity as 

measured by the extent to which a bank holding company is using stable 

sources of funding. The only measure that has not clearly improved since 

the act’s enactment was liquidity as measured by the capacity of a bank 

holding company’s liquid assets to cover its volatile liabilities. Thus, the 
 

Page 57 GAO-13-101 Dodd-Frank Act Regulations

Dodd-Frank Act appears to be broadly associated with improvements in 

most indicators of safety and soundness for U.S. bank SIFIs.

Our approach allows us to partially differentiate changes in funding costs, 

capital adequacy, asset quality, earnings, and liquidity associated with the 

Dodd-Frank Act from changes due to other factors. However, several 

factors make isolating and measuring the impact of the Dodd-Frank Act’s 

new requirements for SIFIs challenging. The effects of the act cannot be 

differentiated from the effects of simultaneous changes in economic 

conditions, such as the pace of the recovery from the recent recession, or 

regulations, such as those stemming from Basel III, or other changes, 

such as in credit ratings that differentially may affect bank SIFIs and other 

bank holding companies. In addition, many of the new requirements for 

SIFIs have yet to be implemented. For example, the Federal Reserve 

plans to impose a capital surcharge and liquidity ratios on at least some 

SIFIs, but the exact form and scope of these requirements are not yet 

known.87 Nevertheless, our estimates are suggestive of the initial effects 

of the Dodd-Frank Act on bank SIFIs and provide a baseline against 

which to compare future trends.

We analyzed the impact of four major rules that were issued separately 

by the Federal Reserve and SEC pursuant to the Dodd-Frank Act and 

have been final for around a year or more.

88

We reviewed the following four major rules: (1) the Federal Reserve’s 

Regulation II (Debit Card Interchange Fees and Routing), (2) SEC’s 

Issuer Review of Assets in Offerings of Asset-Backed Securities rule, (3) 

SEC’s Disclosure for Asset-Backed Securities Required by Section 943 of 

In contrast to the Dodd-Frank 

Act’s SIFI-related provisions and rules, these major rules implement 

provisions that serve specific investor or consumer protection purposes. 

These impact analyses are limited in scope and preliminary in nature, in 

part, because of the limited time the rules have been effective and limited 

data available on their impact. In addition, as discussed below, financial 

and other firms subject to the rules and other market participants still are 

reacting to the rules. 

 

8777 Fed. Reg. 594 (Jan. 5, 2012). 

88We analyzed four rules that were final as of July 21, 2011. See appendix I for more 

details on our rule selection. 

Analysis of Select Major 

Rules Identifies Some 

Initial Impacts, but the 

Markets Have Not Yet 

Fully Adjusted to the Rules 
 

Page 58 GAO-13-101 Dodd-Frank Act Regulations

the Dodd-Frank Wall Street Reform and Consumer Protection Act rule, 

and (4) SEC’s Shareholder Approval of Executive Compensation and 

Golden Parachute Compensation rules. We selected these rules 

because they were major rules and some data were available about their 

impact.89

Section 1075 of the Dodd-Frank Act amends the Electronic Fund Transfer 

Act (EFTA) by adding a new section 920 on interchange transaction fees 

and rules for payment card transactions. As required by EFTA section 

920, the Federal Reserve’s Regulation II establishes standards for 

assessing whether debit card interchange fees received by issuers are 

reasonable and proportional to the costs incurred by issuers for electronic 

debit transactions. The rule sets a cap on the maximum permissible 

interchange fee that an issuer may receive for an electronic debit 

transaction at $0.21 per transaction, plus 5 basis points multiplied by the 

transaction’s value.

Appendix V includes a more complete discussion of our impact 

analysis on the Federal Reserve’s Regulation II.

90 An issuer bank that complies with Regulation II’s 

fraud-prevention standards may receive no more than an additional 1 

cent per transaction.91

 

89As defined by the Congressional Review Act, a major rule is a rule that the Administrator 

of the Office of Information and Regulatory Affairs within OMB finds has resulted in or is 

likely to result in (1) an annual effect on the economy of $100 million or more; (2) a major 

increase in costs or prices; or (3) significant adverse effects on competition, employment, 

investment, productivity, or innovation. 5 U.S.C. § 804(2). 

The fee cap became effective on October 1, 2011. 

However, as required by EFTA section 920, the rule exempts from the fee 

cap issuers that have, together with their affiliates, less than $10 billion in 

assets, and transactions made using debit cards issued pursuant to 

government-administered payment programs or certain reloadable 

prepaid cards. 

9076 Fed. Reg. 43,394 (Jul. 20, 2011). 

9177 Fed. Reg. 46,258 (Aug. 3. 2012). EFTA Section 920 permits the Federal Reserve to 

allow for an adjustment to an interchange transaction fee that is reasonably necessary to 

make allowance for costs incurred by the issuer in preventing fraud in relation to electronic

debit transactions, provided the issuer complies with standards established by the Federal 

Reserve relating to fraud prevention. 

The Federal Reserve’s 

Regulation II (Debit 

Interchange Fees and Routing 

Rule) 
 

Page 59 GAO-13-101 Dodd-Frank Act Regulations

Regulation II’s fee cap generally has reduced debit card interchange 

fees.92 However, debit card issuers, payment card networks, and 

merchants are continuing to react to the rule; thus, the rule’s impact has 

not yet been fully realized. Large banks that issue debit cards initially 

have experienced a decline in their debit interchange fees as a result of 

the rule, but small banks generally have not.93 Data published by the 

Federal Reserve show that 15 of 16 card networks provided a lower 

interchange fee, on average, to issuers subject to the fee cap (covered 

issuers) after the rule took effect.94 Specifically, the data show that the 

average interchange fee received by covered issuers declined 52 

percent, from $0.50 in the first three quarters of 2011 to $0.24 in the 

fourth quarter. During the same period, the interchange fee as a 

percentage of the average transaction value for covered issuers declined 

from 1.29 percent to 0.60 percent. Our regression analysis also suggests 

that the fee cap is associated with reduced interchange fee income for 

covered banks.95 Our estimates suggest that interchange fees collected 

by covered banks, as a percent of their assets, were about 0.007 to 0.008 

percentage points lower than they otherwise would have been in the 

absence of the fee cap. For a bank with assets of $50 billion, this 

amounts to $3.5 million to $4 million in reduced interchange fee income

per quarter.

96

The reduction in debit interchange fees following the adoption of 

Regulation II likely has resulted or will result in savings for merchants. 

According to the Federal Reserve and industry experts, the merchant 

 

92The parties involved in an electronic debit card transaction are (1) the customer, or debit 

cardholder, (2) the bank that issued the debit card to the customer (issuer bank); (3) the 

merchant; (4) the merchant’s bank (called the acquirer bank), and (5) the payment card 

network that processes the transaction between the merchant acquirer bank and the 

issuer bank. In a debit transaction, the merchant receives the amount of the purchase 

minus a fee that it must pay to its acquirer bank. This fee includes the debit interchange 

fee that the acquirer bank pays to the issuer.

93See GAO-12-881 for a discussion of the rule’s impact on small issuers.

94The Federal Reserve published data on interchange fees for 16 card networks from 

January 1, 2011 to December 31, 2011. According to Federal Reserve staff, totals 

published include data from 2 additional networks. 

95See appendix VI for a more detailed discussion of our regression analysis. 

96Our regression analysis suggests that covered banks have recovered some of their lost 

interchange fee revenue, such as through increased revenue from service charges on 

deposit accounts. See appendix VI for more details on our regression analysis. 
 

Page 60 GAO-13-101 Dodd-Frank Act Regulations

acquirer market is competitive. Thus, the decrease in interchange fees 

likely has translated or will translate into lower merchant acquirer fees.97

However, merchants that have a high volume of small value transactions 

may be worse off after the adoption of the rule, because their debit card 

interchange fees might have increased due to the fee cap.98

In addition to the fee cap, Regulation II prohibits issuers and card 

networks from restricting the number of networks over which electronic 

debit transactions may be processed to less than two unaffiliated 

networks.99 This prohibition became effective on April 1, 2012. The rule 

further prohibits issuers and networks from inhibiting a merchant from 

directing the routing of an electronic debit transaction over any network 

allowed by the issuer.100

Regulation II’s prohibitions may have a limited impact on increasing 

competition and, in turn, lowering interchange fees, because issuers 

largely control which networks may process their debit card transactions. 

Merchants likely continue to have only one network routing option for 

This prohibition became effective October 1, 

2011.

 

97Competition in the supply of acquirer services is expected to cause acquirer banks to 

adjust the fees they charge to merchants and pass on any savings to avoid losing 

merchant business. 

98Interchange fees generally combine an ad-valorem component, which depends on the 

amount of the transaction, and a fixed-fee component. Before Regulation II was 

implemented, fees more widely varied based on, among other things, the type of 

merchant. In some cases, the interchange fee for small-ticket transactions, or transactions 

that are generally under $15, were below the fee cap before Regulation II became 

effective. Since then, payment card networks have generally set their interchange fees at 

the level of the cap for covered issuers, so interchange fees for small-ticket transactions 

using cards issued by covered issuers have likely increased.

99EFTA section 920 also requires the Federal Reserve to prescribe rules that prohibit 

issuers and payment card networks from restricting the number of networks on which an 

electronic debit transaction may be processed to one such network or two or more 

networks operated by affiliated persons. 

100EFTA section 920 also requires the Federal Reserve to prescribe rules prohibiting 

issuers and networks from inhibiting the ability of any person that accepts debit cards from 

directing the routing of electronic debit transactions over any network that may process 

such transactions. 
 

Page 61 GAO-13-101 Dodd-Frank Act Regulations

transactions completed by signature.101

In response to Regulation II, VISA is undertaking strategies intended to 

attract merchant routing. VISA recently imposed a new monthly fixed 

acquirer fee that merchants must pay to accept VISA debit and credit 

cards. VISA also plans to reduce merchants’ variable fees so that 

merchants’ total fees associated with VISA transactions likely would be 

lower after the new fee structure’s implementation.

Additionally, issuers can comply 

by having an unaffiliated signature network and personal identification 

number (PIN) network, which means that there may only be one network 

routing choice once the customer decides to use her signature or her PIN. 

Therefore, even though Regulation II provides merchants with the 

authority to choose the network over which to route debit card 

transactions, merchants may not have a choice about which network to 

route a debit card transaction. Going forward, issuers may be able to act 

strategically to limit competition over debit card interchange fees through 

their control over which networks may process their debit card 

transactions.

102 In addition, 

according to VISA representatives, VISA’s signature network also is able 

to process PIN transactions, in essence automatically offering an 

additional PIN routing choice to merchants for cards that carry VISA 

signature.103

 

101Consumers authenticate and complete electronic debit card transactions by entering a 

personal identification number (PIN) or their signature. In its rule proposal, the Federal 

Reserve considered requiring issuers to allow at least two unaffiliated signature networks 

and two unaffiliated PIN networks to process their debit card transactions. However, 

according to the final rule, networks and issuers stated it would be too costly to 

reconfigure cards and merchant equipment to enable the processing of two signature 

networks associated with one card. 75 Fed. Reg. 81,722 (Dec. 28, 2010).

For example, in the past, a debit card that carried the VISA 

102VISA representatives have explained publicly that this new fee structure is a strategic 

response to Regulation II. They said that VISA’s PIN network, Interlink, lost significant 

transaction volume due to Regulation II, and the new fee structure is one of the company’s 

strategies to regain some of the lost market share. VISA representatives stated that on 

March 13, 2012, the Department of Justice Antitrust Division issued a civil investigative 

demand requesting additional information about the company’s debit strategies, including 

this fixed acquirer fee. 

103Representatives from VISA said this move was a strategic response to their loss of 

market share associated with Regulation II. VISA representatives stated that on March 13, 

2012, the Department of Justice Antitrust Division issued a civil investigative demand 

requesting additional information about the company’s debit strategies, including 

information about the VISA signature debit network’s ability to authenticate PIN 

transactions.
 

Page 62 GAO-13-101 Dodd-Frank Act Regulations

signature and two other PIN networks usually would process a PIN 

transaction through one of the PIN networks. Now, the VISA check card 

signature network can continue to be the only option for routing signature 

debit transactions on that card but also become a third option for routing 

PIN debit transactions. The extent to which such strategies may lower 

debit card interchange fees is unknown.

Section 945 of the Dodd-Frank Act requires SEC to issue a rule relating 

to the registration statement required to be filed by issuers of assetbacked securities (ABS). To implement section 945, SEC adopted a new 

rule under the Securities Act of 1933 and amending Regulation AB.104

The rule requires an issuer of registered offerings of ABS to perform a 

review of the assets underlying the securities that “must be designed and 

effected to provide reasonable assurance that the disclosure in the 

prospectus regarding the assets is accurate in all material respects.”105

The rule requires disclosure regarding: “[t]he nature of the review of 

assets conducted by an ABS issuer;” “[t]he findings and conclusions of a 

review of assets conducted by an ABS issuer or third party;” “[d]isclosure 

regarding assets in the pool that do not meet the underwriting standards;” 

and “[d]isclosure regarding which entity determined that the assets should 

be included in the pool . . . .”106

Section 943 of the Dodd-Frank Act requires SEC to prescribe regulations 

on the use of representations and warranties in the market for ABS. The 

new rules promulgated under section 943 require ABS securitizers to 

 This rule became effective on March 28, 

2011.

 

10476 Fed. Reg. 4231 (Jan. 25, 2011). The initial proposed rule also included 

“consideration of rules to implement Section 15E(s)(4)(A) of the Exchange Act, which 

requires issuers or underwriters of any asset-backed security to make publicly available 

the findings and conclusions of any third-party due diligence report the issuer or 

underwriter obtains.” 75 Fed. Reg. 64,182 (Oct. 19, 2010). The final adoption has been 

delayed based on the suggestion by several commentators that the new Exchange Act 

Section 15E(s)(4) should be read as a whole. 

10576 Fed. Reg. 4231 (Jan. 25, 2011). According to SEC staff, most ABS that comprise 

residential mortgage-backed securities are issued or guaranteed by a government 

sponsored agency, such as the Federal National Mortgage Association (Fannie Mae), the 

Federal Home Loan Mortgage Corporation (Freddie Mac), or the Government National 

Mortgage Association (Ginnie Mae), and are exempt from registration under the Securities 

Act and reporting under the Exchange act.

10676 Fed. Reg. 4231 (Jan. 25, 2011).

SEC’s Rules on Asset-Backed 

Securities Disclosures and 

Reviews 
 

Page 63 GAO-13-101 Dodd-Frank Act Regulations

disclose fulfilled and unfulfilled repurchase requests.107

The two SEC ABS rules may increase issuer securitization costs but also 

investor demand by improving investor confidence in the market for ABS. 

The effect of the rules on the revitalization of the ABS markets is unclear. 

Isolating and estimating the effects of the SEC rules on the ABS market is 

challenging, but data on ABS issuances are available. However, factors 

other than the SEC rules likely impact ABS issuance trends much more 

significantly. For example, the ABS markets compete with other capital 

markets for investor dollars, so yields or potential returns to investments 

in competing markets may be an important determinant of ABS activity. 

Additionally, ABS are backed by residential mortgage, commercial 

mortgage, equipment, student, auto, credit card, and other loans, which 

means that the health of those underlying markets also may determine 

the extent to which financial institutions may be able and willing to 

securitize the loans and investors may be willing to invest in ABS. 

Specifically, ABS 

securitizers must disclose demand, repurchase, and replacement history 

for an initial 3-year look back period ending December 31, 2011, and 

going forward on a quarterly basis. Further, the rules conform disclosure 

requirements for prospectuses and ongoing reports for ABS sold in 

registered transactions. The rule also requires nationally recognized 

statistical rating organizations to disclose in any report accompanying a 

credit rating for an ABS transaction, the representations, warranties, and 

enforcement mechanisms available to investors and how they differ from 

the representations, warranties and enforcement mechanisms in 

issuances of similar securities. This rule became effective on March 28, 

2011.

Since 2010, ABS issuances of agency mortgage-related assets declined 

slightly but appear to be stabilizing, while total issuances for other types 

of ABS continue to be at historically low levels. Figure 8 shows that ABS 

 

10776 Fed. Reg. 4489 (Jan. 26, 2011). According to SEC, ABS sponsors or originators 

typically make representations and warranties about the quality of the underlying assets in 

an ABS. If the assets do not comply with the representations or warranties, a sponsor 

usually must repurchase or replace the assets. For example, in the case of residential 

mortgage backed securities, one representation and warranty is that each of the loans has 

complied with applicable federal, state, and local laws, including truth-in-lending, 

consumer credit protection, laws that protect against predatory and abusive practices, and 

disclosure laws. Another representation is that no fraud has taken place in connection with 

the origination of the assets on the part of the originator or any party involved in the 

origination of the assets.
 

Page 64 GAO-13-101 Dodd-Frank Act Regulations

issuances in total historically have been dominated by agency mortgagerelated ABS. At the height of market issuances in 2003, agency 

mortgage-related ABS made up about 76 percent (or $3.4 trillion) of the 

almost $4.5 trillion dollars in total issuances, and between 2008 and 

2011, they comprised about 91 percent of annual ABS issuances.108

 

108According to the Securities Industry and Financial Markets Association (SIFMA), 

agency mortgage-related ABS include Ginnie Mae, Fannie Mae, and Freddie Mac 

mortgage-backed securities and collateralized mortgage obligations (single and 

multifamily), as well as FDIC and NCUA structured transactions. The latter are backed by 

assets of failed banks and credit unions, respectively, and may include non-mortgage 

related collateral. Dollar amounts are adjusted for inflation and are expressed in constant 

2012 Q2 dollars.

Agency mortgage-related ABS issuances declined to 2004 levels in 2011, 

but the data for the first two quarters of 2012 indicate that this recent 

downward trend may be stabilizing.
 

Page 65 GAO-13-101 Dodd-Frank Act Regulations

Figure 8: Annual and Quarterly U.S. ABS Issuance, from 2000 through Second Quarter of 2012

Note: Dollar amounts are adjusted for inflation and are expressed in billions of 2012 Q2 dollars.

Figure 9 shows that issuances of other U.S. ABS have not rebounded 

from the sharp declines experienced after 2006.

109 From 2006 to 2008, 

annual issuances of other U.S. ABS (i.e. total U.S. ABS excluding agency 

mortgage-related ABS) fell by approximately 90 percent from over $1.8 

trillion to less than $187 billion, due primarily to 59 and 32 percent drops 

in non-agency mortgage-related and home equity ABS issuances, 

respectively.110

 

109Other ABS include home equity, auto, credit card, equipment, manufactured housing, 

student loan, non-agency mortgage-related, and other ABS. 

 Between 2008 and 2010, issuances of other ABS 

110Dollar amounts are adjusted for inflation and are expressed in constant 2012 Q2 

dollars. 
 

Page 66 GAO-13-101 Dodd-Frank Act Regulations

continued to decline slightly to just over $147 billion. As shown in figure 

9’s insert, other ABS issuances have experienced modest increases 

since 2010, primarily because of the growth in credit card, auto, and 

student loans ABS.

Figure 9: Annual and Quarterly U.S. ABS Issuance Excluding Agency Mortgage-Related ABS, from 2000 through Second 

Quarter of 2012

Note: Figure 9 does not include agency mortgage-related ABS data. Data on equipment, 

manufactured housing, and other ABS are not separately plotted but are included in the total. Dollar 

amounts are adjusted for inflation and are expressed in billions of 2012 Q2 dollars. 

Section 951 of the Dodd-Frank Act amends the Securities Exchange Act 

of 1934, requiring public companies subject to the proxy rules to conduct 

a separate shareholder advisory vote on compensation for executives at 

least every 3 years and a shareholder advisory vote on the frequency of 

these votes at least every 6 years. The amendment also requires a 

SEC’s Rules on Shareholder

Approval of Executive 

Compensation and Golden 

Parachute Compensation 

Arrangements 
 

Page 67 GAO-13-101 Dodd-Frank Act Regulations

shareholder advisory vote on whether to approve certain so-called 

“golden parachute” compensation arrangements in connection with a 

business merger or acquisition transaction.

111 The rule promulgated 

under section 951 requires a separate shareholder vote on compensation 

of executives and a vote on the frequency of these votes for the first 

annual or other meeting of shareholders at which directors will be elected 

and for which SEC’s rules require executive compensation disclosure 

pursuant to item 402 of Regulation 5-K occurring on or after January 21, 

2011.112 The rule became effective on April 4, 2011. However, SEC 

adopted a temporary exemption for smaller reporting companies that 

does not require them to conduct shareholder advisory votes on 

executive compensation and their frequency until after January 21, 

2013.113

Two proxy seasons have passed since SEC’s say-on-pay rule became 

effective for larger reporting firms, and most companies have received 

majority shareholder approval of their executive compensation 

packages.114 Table 9 shows historical data on companies’ proposals on 

executive compensation subject to shareholder vote (say-on-pay 

proposals).115

 

111Section 951 requires disclosure of any agreements or understandings that the person 

making a proxy or consent solicitation has with named executive officers of the acquiring 

issuer concerning any type of compensation that is based on or relates to the acquisition, 

merger, consolidation, sale, or other disposition of all or substantially all of the assets of 

the issuer and the aggregate total of all such compensation that may be paid or become 

payable to or on behalf of such executive officer. 15 U.S.C. § 78n-1.

The data show that nearly 3,200 companies provided 

11276 Fed. Reg. 6010 (Feb. 2, 2011). 

113Section 951 provides that SEC may exempt an issuer from the advisory voting 

requirements. In determining whether to make an exemption, SEC is to take into account, 

among other considerations, whether the requirements disproportionately burden small 

issuers. A “smaller reporting company” is defined in rule 12b-2 under the Exchange Act, 

and includes companies that had a public float of less than $75 million as of the last 

business day of the issuer’s most recently completed second fiscal quarter.

114A proxy season is the period of the year during which many companies hold their 

annual shareholder meetings, which is typically between March and June. 

115A shareholder can choose to vote “for” or “against” a say-on-pay proposal. She can 

also choose to take a neutral stance and submit an “abstain” vote. If a shareholder fails to 

provide instructions to her broker, the corresponding votes are categorized as “broker 

non-votes.” Institutional Shareholder Services (ISS) measured failed proposals as those 

where the “against” votes outnumber the “for” votes. According to market experts, some 

companies define failed proposals as those where more than 50 percent of the sum of 

“for,” “against,” and “abstain” votes are votes “against” the proposal. 
 

Page 68 GAO-13-101 Dodd-Frank Act Regulations

shareholders with say-on-pay proposals in 2011. In that year, 2,809 

Russell 3000 companies had say-on-pay proposals and around 99 

percent of the proposals were approved.116 A study by the Council of 

Institutional Investors found that the most frequently cited reason for 

shareholder opposition for failed proposals conducted between January 1 

and July 1, 2011, was a disconnect between pay and performance.117

Table 9 also shows that in 2012 (as of June 25, 2012), 1,842 companies 

in the index had say-on-pay proposals and around 97 percent of the 

proposals were approved.118 According to SEC, around 1,200 smaller 

reporting companies are required to hold say-on-pay proposals in 2013. 

In addition, according to the Institutional Shareholder Services (ISS), a 

large proxy advisory firm, investors overwhelmingly have supported that 

future say-on-pay votes be done annually.119 

 

116Russell 3000 companies are those included in the Russell 3000 Index, which 

comprises the largest 3,000 U.S. public companies and, according to Russell Investments, 

represents about 98 percent of the U.S. equity market. 

117Although the percentage of failed votes was low in 2011, the report states that the 

actual number of failed votes was relatively high “compared with the track record of say on 

pay in other countries and the expectations of corporate government professionals.” 

According to the report, shareholders defined the disconnect between pay and 

performance to mean that (1) the performance of a firm was below the peer group median 

(as measured by total absolute shareholder return (TSR) over 1, 3, or 5 years); or (2) 

absolute performance based on other financial measures. Council of Institutional 

Investors, Say-On-Pay: Identifying Investor Concerns (September 2011). 

118A report from Semler Brossy, an executive compensation consulting firm, indicated that 

about 90 percent of firms have received at least 70 percent shareholder approval on sayon-pay proposals in 2011 and 2012. According to the report, 91 percent and 93 percent of 

companies received at least 70 percent of shareholder approval for their say-on-pay 

proposals in 2012 and 2011, respectively. See Semler Brossy, 2012 Say on Pay Results: 

Russell 3000 Shareholder Voting (Sept. 5, 2012).

119According to ISS, as of September 1, 2011, annual votes received majority support at 

80.1 percent of companies in the Russell 3000 index, as compared to triennial votes, 

which received majority support at 18.5 percent of companies. See ISS, 2011 U.S. 

Postseason Report (Sept. 29, 2011). 
 

Page 69 GAO-13-101 Dodd-Frank Act Regulations

Table 9: Public Companies’ Say-on-Pay Proposals, from 2007 through June 25, 2012

Year

U.S. Total Russell 3000 Companies

Say-on-pay proposals Say-on-pay proposals

Failed say-on-pay proposals 

(percent failed)

2007

a

6 2 0 (0%)

2008 13 8 0 (0%)

2009 331 154 0 (0%)

2010 326 154 3 (2%)

2011 3,188 2,809 41 (1%)

Jan. 1, 2012- June 25, 2012b 2,203 1,842 49 (3%)

Source: GAO summary of data from Institutional Shareholder Services, Inc.

a

A shareholder can choose to vote “for” or “against” a say-on-pay proposal. She can also choose to 

take a neutral stance and submit an “abstain” vote. If a shareholder fails to provide instructions to her 

broker, the corresponding votes are categorized as “broker non-votes.” ISS defined failed proposals 

as those where the “against” votes outnumber the “for” votes.

b

Note: Companies that held say-on-pay votes on executive compensation proposals before 2011 

include companies that have received financial assistance under the Troubled Asset Relief Program 

(TARP). These companies have been required to hold annual say-on-pay votes until they pay back all 

the money they borrowed from the government, at which time they will become subject to the say-onpay rules applicable to other public companies. 

ISS data for 2012 include say-on-pay proposals as of June 25, 2012, which likely capture most of the 

2012 proposals, because votes usually take place between March and June.

Although it is not clear how companies will react to the results of 

shareholder say-on-pay votes in the future, according to two experts, 

some failed votes have led to, among other actions, shareholder lawsuits 

and changes in pay practices. For example, according to the law firm 

Davis Polk & Wardwell LLP corporate governance blog, as of September 

5, 2012, shareholders at a number of public companies that had failed 

votes have brought lawsuits against the boards of directors, but the courts 

largely have ruled in favor of the public companies. In its study, Semler 

Brossy also found that 26 out of 30 companies that had failed say-on-pay 

proposals in 2011 had passed their 2012 proposals (as of September 

2012) due, in part, to changes in pay practices.

120

 

120Semler Brossy, 2012 Say on Pay Results: Russell 3000 Shareholder Voting (Sept. 5, 

2012). An earlier study by the firm stated that potential reasons behind the increase in 

shareholder say-on-pay approval from 2011 to 2012 included increased weighting of 

performance‐based equity tied to specific performance measures in long-term incentive 

programs, significant shareholder outreach efforts, and a reduction in problematic pay 

practices. Semler Brossy, Say on Pay Behind the Numbers: How Have Companies 

Responded to Failed 2011 Say on Pay Votes? (May 18, 2012). 

Additionally, the study 

noted that companies that received modest shareholder approval of say-
 

Page 70 GAO-13-101 Dodd-Frank Act Regulations

on-pay proposals in 2011 also have improved their records. According to 

the study, 93 of 125 companies that received from 50 percent to 70 

percent shareholder approval of say-on-pay proposals in 2011 received 

more support in 2012.

We provided a draft of this report to CFPB, CFTC, FDIC, the Federal 

Reserve Board, FSOC, NCUA, OCC, OFR, SEC, and Treasury for review 

and comment. SEC and Treasury provided written comments that we 

have reprinted in appendixes VII and VIII, respectively. All of the 

agencies also provided technical comments, which we have incorporated, 

as appropriate. 

In their comments, the agencies neither agreed nor disagreed with the 

report’s findings. In its letter, Treasury noted that FSOC agrees that 

successful implementation of the Dodd-Frank Act rulemakings will require 

member agencies to work together, even if such coordination is not 

specifically required under the Dodd-Frank Act. Treasury also noted that 

FSOC has served as a forum for discussion among members and 

member agencies, through various FSOC meetings, committee meetings, 

and subcommittee meetings. Finally, the letter describes FSOC’s effort to 

continue monitor potential risks to the financial stability and implement 

other statutory requirements.

In its letter, SEC noted that it revised its guidance on economic analysis 

in March 2012, in part in response to a recommendation in our 2011 

report that federal financial regulators more fully incorporate OMB’s 

regulatory analysis guidance into their rulemaking policies. SEC’s letter 

stated that the revised guidance already has improved the quality of 

economic analysis in its rulemakings and internal rule-writing processes. 

SEC also noted that FSOC has fostered a healthy and positive sense of 

collaboration among the financial regulators. SEC remains amenable to 

working with FSOC on formal coordination policies, as GAO previously 

recommended, but noted that FSOC's efforts should fully respect the 

independence of the respective member agencies regarding the 

substance of the rules for which they are responsible and the mission of 

FSOC itself.

We are sending copies of this report to CFPB, CFTC, FDIC, the Federal 

Reserve Board, FSOC, NCUA, OCC, OFR, SEC, Treasury, interested 

congressional committees, members, and others. This report will also be 

available at no charge on our website at http://www.gao.gov. 

Agency Comments 

and Our Evaluation
 

Page 71 GAO-13-101 Dodd-Frank Act Regulations

Should you or your staff have questions concerning this report, please 

contact me at (202) 512-8678 or clowersa@gao.gov. Contact points for 

our Offices of Congressional Relations and Public Affairs may be found 

on the last page of this report. Key contributors to this report are listed in 

appendix IX. 

A. Nicole Clowers

Director

Financial Markets

and Community Investment
 

Page 72 GAO-13-101 Dodd-Frank Act Regulations

List of Addressees

The Honorable Harry Reid

Majority Leader

The Honorable Mitch McConnell

Minority Leader

United States Senate

The Honorable John Boehner

Speaker

The Honorable Nancy Pelosi

Minority Leader

House of Representatives

The Honorable Debbie Stabenow

Chairwoman

The Honorable Pat Roberts

Ranking Member

Committee on Agriculture, Nutrition and Forestry

United States Senate

The Honorable Daniel K. Inouye

Chairman

The Honorable Thad Cochran

Vice Chairman

Committee on Appropriations

United States Senate

The Honorable Tim Johnson

Chairman

The Honorable Richard C. Shelby

Ranking Member

Committee on Banking, Housing, and Urban Affairs

United States Senate

The Honorable John D. Rockefeller IV

Chairman

The Honorable Kay Bailey Hutchison

Ranking Member

Committee on Commerce, Science, and Transportation

United States Senate
 

Page 73 GAO-13-101 Dodd-Frank Act Regulations

The Honorable Frank D. Lucas

Chairman

The Honorable Collin C. Peterson

Ranking Member

Committee on Agriculture

House of Representatives

The Honorable Hal Rogers

Chairman

The Honorable Norm Dicks

Ranking Member

Committee on Appropriations

House of Representatives

The Honorable Fred Upton

Chairman

The Honorable Henry A. Waxman

Ranking Member

Committee on Energy and Commerce

House of Representatives

The Honorable Spencer Bachus

Chairman

The Honorable Barney Frank

Ranking Member

Committee on Financial Services

House of Representatives
Appendix I: Scope and Methodology

Page 74 GAO-13-101 Dodd-Frank Act Regulations

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 on 

the financial markets.

To address the first two objectives, we limited our analysis to the final 

rules issued pursuant to the Dodd-Frank Act that were effective between 

July 21, 2011, and July 23, 2012, a total of 66 rules (see app. II). To 

identify these rules, we used a website maintained by the Federal 

Reserve Bank of St. Louis that tracks Dodd-Frank Act regulations. We 

corroborated the data with information on Dodd-Frank Act rulemaking 

compiled by the law firm Davis Polk & Wardwell LLP. 

To address our first objective, we reviewed statutes, regulations, GAO 

studies, and other documentation to identify the benefit-cost or similar 

analyses federal financial regulators are required to conduct in 

conjunction with rulemaking. For each of the 66 rules within our scope, 

we prepared individual summaries using a data collection instrument 

(DCI). The criteria used in the DCI were generally developed based on 

the regulatory analyses required of federal financial regulators and Office 

of Management and Budget (OMB) Circular A-4, which is considered best 

practice for regulatory analysis. We used the completed summaries to 

develop a table showing the extent to which the federal financial 

regulators addressed the criteria for each of the Dodd-Frank Act 

regulations. We selected 4 of the 66 rules for in-depth review, comparing 

the benefit-cost or similar analyses to specific principles in OMB Circular 

A-4. We selected the rules for in-depth review based on whether the rule 

was deemed a major rule (i.e., whether it is anticipated to have an annual 

effect on the economy of $100 million or more) by the responsible agency 

and OMB. We generally found that the financial regulators do not state in 

the Federal Register notice whether the rule is major. However, we 

learned that regulators are required to submit major rules to GAO under 

the Congressional Review Act (CRA) for the purpose of ensuring that the 

regulators followed certain requirements in conducting the rulemaking, 

and GAO maintains a database of major rules. Our search of the CRA 

database showed that federal financial regulators issued 19 major DoddFrank Act rules within our scope. To further narrow the list of rules for indepth review, we determined to include at least one rule from each of the 

federal financial regulators. We identified major rules issued by only 

Appendix I: Scope and Methodology
Appendix I: Scope and Methodology

Page 75 GAO-13-101 Dodd-Frank Act Regulations

three financial regulators: the Commodity Futures Trading Commission 

(CFTC), the Board of Governors of the Federal Reserve (Federal 

Reserve), and the Securities and Exchange Commission (SEC). In 

addition, the Department of the Treasury (Treasury) issued a major rule 

during the scope period. The Federal Reserve and Treasury each issued 

only one major rule during our scope period—the Debit Card Interchange 

Fee rule and the Assessment of Fees on Large Bank Holding Companies 

to Cover the Expenses of the Financial Research Fund, respectively. 

SEC and CFTC issued multiple major rules during the period. To further 

narrow the list of rules for in-depth review, we determined to include only 

rules implementing a new regulatory authority rather than amending a 

preexisting regulatory authority. For SEC, only one rule met this 

criterion—the Securities Whistleblower Incentives and Protections rule. 

CFTC issued several major rules that met this criterion so to further 

narrow the list of rules for in-depth review, we consulted with a former 

CFTC economist and solicited his opinion whether it would be appropriate 

for GAO to assess the Real-Time Public Reporting of Swap Transaction 

Data rule, and he agreed. To compare these rules to the principles in 

Circular A-4, we developed a DCI with the principles and applied the DCI 

to all four rules. In conducting each individual analysis, we reviewed the 

Federal Register notices prepared by the agencies during the course of 

the rulemaking. We also interviewed officials from CFTC, the Federal 

Reserve, SEC, and Treasury to determine the extent to which benefit-cost 

or similar analyses were conducted.

To address our second objective, we reviewed the Dodd-Frank Act, 

regulations, and studies, including GAO reports, to identify the 

coordination and consultation requirements federal financial regulators 

are required to conduct in conjunction with rulemaking. For each of the 66

rules in our scope, we reviewed the rule releases to determine the rules 

on which agencies coordinated with other federal financial regulators and 

international financial regulators. From our review of the rule releases, we 

developed a table that shows the rules that involved coordination, 

agencies involved, nature of coordination, whether coordination was 

required or voluntary, and whether the agencies coordinated with 

international regulators. Rules that may have involved interagency 

coordination in the rulemaking but did not expressly mention such 

coordination in the rule release are not included in this table. Of the 19

rules that we determined involved interagency coordination, we selected 

3 rules to review in depth to assess how and the extent to which federal 

financial regulators coordinated, focusing on actions they took to avoid 

conflict and duplication in rulemakings. In selecting rules to review in 

depth, we sought to include at least one rule that was jointly issued and 
Appendix I: Scope and Methodology

Page 76 GAO-13-101 Dodd-Frank Act Regulations

therefore implicitly required coordination and at least one rule that was 

issued by a single agency and involved coordination with another agency. 

We also sought broad coverage of agencies issuing substantive DoddFrank Act rules. We ultimately selected two joint rules and one rule issued 

by a single agency, including rules issued by FDIC, OCC, Federal 

Reserve, CFTC, and SEC. In reviewing each rule, we reviewed the 

Federal Register notices for each rule, and we interviewed officials from 

each agency to determine how and the extent to which coordination took 

place to avoid duplication and conflict. We also interviewed officials at 

FSOC and CFPB to get an understanding of their role in interagency 

coordination for Dodd-Frank Act rulemakings. 

To address our third objective, we took a multipronged approach to 

analyze what is known about the impact of the Dodd-Frank Act on the 

financial marketplace. First, the act contains provisions that serve to 

enhance the resilience of certain bank and nonbank financial companies 

and reduce the potential for any one of these companies to affect the 

financial system and economy. Specifically, the Dodd-Frank Act requires 

the Federal Reserve to impose enhanced prudential standards and 

oversight on bank holding companies with $50 billion or more in total 

consolidated assets and nonbank financial companies designated by 

FSOC. For purposes of this report, we refer to these bank and nonbank 

financial companies as bank systemically important financial institutions 

(bank SIFI) and nonbank systemically important financial institutions 

(nonbank SIFI), respectively, or collectively as SIFIs. We developed 

indicators to monitor changes in certain characteristics of SIFIs that may 

be suggestive of the impact of these reforms. FSOC has not yet 

designated any nonbank financial firms for Federal Reserve enhanced 

supervision. As a result, we focus our analysis on U.S. bank SIFIs.1

 

1

Our analyses of bank SIFIs include U.S. bank holding companies with total consolidated 

assets of $50 billion or more and foreign bank organizations’ U.S.-based bank holding 

company subsidiaries that on their own have total consolidated assets of $50 billion or 

more.

To 

understand the rationale behind the act’s focus on enhanced SIFI 

regulation and oversight, we reviewed the legislative history of the act, the 

act itself, related regulations, academic studies, GAO and agency reports, 

and other relevant documentation. To inform our choice of indicators, we 

analyzed the provisions and related rulemakings most relevant to bank 

SIFIs. Our analysis and indicators for this report focus on bank SIFIs’ 

asset size, interconnectedness, complexity, leverage, and liquidity. We 
Appendix I: Scope and Methodology

Page 77 GAO-13-101 Dodd-Frank Act Regulations

developed our indicators of bank SIFIs’ size, leverage, and liquidity using 

quarterly data for bank holding companies from SNL Financial and 

quarterly data on the gross domestic product (GDP) deflator from the

Bureau of Economic Analysis, both for the period from 2006 quarter 1 to 

2012 quarter 2.2 We developed our indicators of bank SIFIs’ complexity 

using data from the Federal Reserve Board’s National Information Center 

as of October 2012.3 As new data become available, we expect to update 

and, as warranted, revise our indicators and create additional indicators 

to cover other provisions.4

Second, we use difference-in-difference regression analysis to infer the 

act’s impact on the provision of credit by and the safety and soundness of 

U.S. bank SIFIs. The key element of our analysis is that the Dodd-Frank 

Act subjects some bank holding companies to enhanced oversight and 

regulation but not other bank holding companies. Specifically, the act 

requires the Federal Reserve to impose a number of enhanced prudential 

standards on bank holding companies with total consolidated assets of 

$50 billion or more (bank SIFI) , while bank holding companies with 

assets less than $50 billion (non-SIFI banks) are not subject to such 

enhanced oversight and regulation. As a result, we were able to compare 

funding costs, capital adequacy, asset quality, earnings, and liquidity for 

bank SIFIs and non-SIFI banks before and after the Dodd-Frank Act. All 

else being equal, the difference in the differences is the inferred effect of 

the Dodd-Frank Act on bank SIFIs. For our analysis, we used quarterly 

data on bank holding companies from SNL Financial and quarterly data 

on commercial banks and savings banks from FDIC and the Federal 

Financial Institutions Examinations Council, all for the period from 2006 

quarter 1 to 2012 quarter 2 (see app. IV for details). Lastly, for all of our 

indicators, we obtained and addressed high-level comments and 

suggestions from FSOC staff and two other market experts.

 

 

2

SNL Financial reports data for bank holding companies based on forms FR Y-9C 

submitted to the Federal Reserve.

3

The National Information Center is a central repository of data about banks and other 

institutions for which the Federal Reserve has a supervisory, regulatory, or research 

interest, including both domestic and foreign banking organizations operating in the United 

States. 

4

For this report, we did not develop indicators for interconnectedness, but expect to do so 

in the future. 
Appendix I: Scope and Methodology

Page 78 GAO-13-101 Dodd-Frank Act Regulations

Third, we analyze the impact of several major rules that were issued 

pursuant to the Dodd-Frank Act and have been final for around a year or 

more. There were 44 final rules as of July 21, 2011, 7 of which were 

major rules. We judgmentally selected 4 out of those 7 rules for impact 

analyses, based largely on data availability. Our selected rules implement 

provisions that serve specific investor or consumer protection purposes. 

We first analyzed the Federal Reserve’s Debit Interchange Fees and 

Routing Rule (Regulation II). As part of that work, we reviewed selected 

statutes and regulations, analyzed available data and documents from the 

Federal Reserve, GAO, and market participants and experts, and 

interviewed agency officials and market experts. Additionally, we 

analyzed two SEC rules on asset-backed securities (ABS): Issuer Review 

of Assets in Offerings of ABS and Disclosure for ABS Required by 

Section 945 and 943 of the Act, respectively. To do this, we reviewed 

selected statutes and regulations and analyzed data on ABS issuances 

obtained from the Securities Industry and Financial Markets Association 

(SIFMA). Lastly, we analyzed SEC’s rule on Shareholder Approval of 

Executive Compensation and Golden Parachute Compensation. As part 

of that analysis, we reviewed selected regulations and analyzed available 

data on shareholder votes on executive compensation that we obtained 

from Institutional Shareholder Services, Inc., a proxy advisory firm that 

advises institutional investors on how to vote proxies and provides 

consulting services to corporations seeking to improve their corporate 

governance. For all of the data described above, we assessed the 

reliability of the data and found it to be reliable for our purposes.

We conducted this performance audit from December 2011 to December

2012 in accordance with generally accepted government auditing 

standards. Those standards require that we plan and perform the audit to 

obtain sufficient, appropriate evidence to provide a reasonable basis for 

our findings and conclusions based on our audit objectives. We believe 

that the evidence obtained provides a reasonable basis for our findings 

and conclusions based on our audit objectives.
Appendix II: Tables Listing Dodd-Frank Act 

Rules Effective as of July 23, 2012

Page 79 GAO-13-101 Dodd-Frank Act Regulations

The following table lists the Dodd-Frank Act rules that we identified as 

final and effective during the scope period for this review—July 21, 2011, 

and July 23, 2012

Table 10: Dodd-Frank Act Rules Effective between July 21, 2011, and July 23, 2012

Rulemaking

Responsible 

regulator Effective date

Did regulator 

identify the 

rule as 

having 

significant 

economic 

impact?

Did regulator 

quantify costs 

of final rule 

other than 

PRA costs?

Did 

regulator 

quantify 

benefits of 

final rule?

Did regulator 

qualitatively 

identify costs 

of final rule?

Did regulator 

qualitatively 

identify 

benefits of 

final rule?

Risk-Based Capital 

Standards: Advanced 

Capital Adequacy 

Framework—Basel II; 

Establishment of a RiskBased Capital Floor 

FDIC, Federal 

Reserve, and 

OCC

07/28/11 No No No a Yes Yes

Securities Whistleblower 

Incentives and Protections 

SEC 08/12/11 Yes No No Yes Yes

Prohibition on the 

Employment, or Attempted 

Employment, of 

Manipulative and Deceptive 

Devices and Prohibition on 

Price Manipulation 

CFTC 08/15/11 No No No Yes Yes

Fair Credit Reporting RiskBased Pricing Regulations Federal 

Reserve and 

Federal Trade 

Commission

08/15/11 No No No Yes Yes

Equal Credit Opportunity Federal 

Reserve

08/15/11 No No No Yes Yes

Certain Orderly Liquidation 

Authority Provisions under 

Title II of the Dodd-Frank 

Wall Street Reform and 

Consumer Protection Act 

FDIC 08/15/11 No No No No Yes

Public Company Accounting 

Oversight Board; Order 

Approving Proposed Board 

Funding Final Rules for 

Allocation of the Board’s 

Accounting Support Fee 

Among Issuers, Brokers, 

and Dealers, and Other 

Amendments to the Board’s 

Funding Rules 

SEC 08/18/11 N/A N/A N/A N/A N/A

Appendix II: Tables Listing Dodd-Frank Act 

Rules Effective as of July 23, 2012
Appendix II: Tables Listing Dodd-Frank Act 

Rules Effective as of July 23, 2012

Page 80 GAO-13-101 Dodd-Frank Act Regulations

Rulemaking

Responsible 

regulator Effective date

Did regulator 

identify the 

rule as 

having 

significant 

economic 

impact?

Did regulator 

quantify costs 

of final rule 

other than 

PRA costs?

Did 

regulator 

quantify 

benefits of 

final rule?

Did regulator 

qualitatively 

identify costs 

of final rule?

Did regulator 

qualitatively 

identify 

benefits of 

final rule?

Authority to Designate 

Financial Market Utilities 

(FMU) as Systemically 

Important 

FSOC 08/26/11 No No No Yes Yes

Family Offices SEC 08/29/11 Yes Yes Yes Yes Yes

Security Ratings SEC 09/02/11; 

12/31/12

No No No Yes Yes

Agricultural Commodity 

Definition 

CFTC 09/12/11 No No No Yes Yes

Retail Foreign Exchange 

Transactions; Conforming 

Changes to Existing 

Regulations in Response to 

the Dodd-Frank Wall Street 

Reform and Consumer 

Protection Act 

CFTC 09/12/11 No No No Yes Yes

Rules Implementing 

Amendments to the 

Investment Advisers Act of 

1940 

SEC 07/21/11;09/19/11 Yes Yes Yes Yes Yes

Privacy of Consumer 

Financial Information; 

Conforming Amendments 

Under Dodd-Frank Act 

CFTC 09/20/11 No No No Yes Yes

Large Trader Reporting for 

Physical Commodity Swaps

CFTC 09/20/11 No No No Yes Yes

Business Affiliate Marketing 

and Disposal of Consumer 

Information Rules 

CFTC 09/20/11 No b No No Yes Yes

Suspension of the duty to 

file reports for classes of 

asset-backed securities

SEC 09/22/11 No No No Yes Yes

Removing Any Reference to 

or Reliance on Credit 

Ratings in Commission 

Regulations; Proposing 

Alternatives to the Use of 

Credit Ratings 

CFTC 09/23/11 No No No Yes Yes

Process for Review of 

Swaps for Mandatory 

Clearing

CFTC 09/26/11 No No No Yes Yes
Appendix II: Tables Listing Dodd-Frank Act 

Rules Effective as of July 23, 2012

Page 81 GAO-13-101 Dodd-Frank Act Regulations

Rulemaking

Responsible 

regulator Effective date

Did regulator 

identify the 

rule as 

having 

significant 

economic 

impact?

Did regulator 

quantify costs 

of final rule 

other than 

PRA costs?

Did 

regulator 

quantify 

benefits of 

final rule?

Did regulator 

qualitatively 

identify costs 

of final rule?

Did regulator 

qualitatively 

identify 

benefits of 

final rule?

Provisions Common to 

Registered Entities 

CFTC 09/26/11 No No No Yes Yes

Debit Card Interchange 

Fees and Routing 

Federal 

Reserve

10/01/11 Yes b No No Yes Yes

Whistleblower Incentives 

and Protection 

CFTC 10/24/11 Yes No No Yes Yes

Swap Data Repositories: 

Registration Standards, 

Duties and Core Principles 

CFTC 10/31/11 Yes Yes No Yes Yes

Disclosure of Information; 

Privacy Act Regulations; 

Notice and Amendments 

FDIC 11/14/11 N/A N/A N/A N/A N/A

Resolution Plans Required Federal 

Reserve and 

FDIC

11/30/11 No No No Yes Yes

Remittance Transfers NCUA 11/30/11 No No No No No

Amendment to July 14, 2011 

Order for Swap Regulation 

CFTC 12/23/11 No No No No Yes

Capital Plans Federal 

Reserve

12/30/11 No No No Yes No

Agricultural Swaps Rule CFTC 12/31/11 No No No Yes Yes

Derivatives Clearing 

Organization General 

Provisions and Core 

Principles

CFTC 01/09/12 Yes Yes No Yes Yes

Position Limits for Futures 

and Swaps

CFTC 01/17/12 Yes Yes No Yes Yes

Performance of Registration 

Functions by National 

Futures Association with 

Respect to Swap Dealers 

and Major Swap Participants 

CFTC 01/19/12 N/A N/A N/A N/A N/A

Mine Safety Disclosure SEC 01/27/12 No No No Yes Yes

Reporting Line for the 

Commission’s Inspector 

General

SEC 02/14/12 N/A N/A N/A N/A N/A

Investment of Customer 

Funds and Funds Held in an 

Account for Foreign Futures 

and Foreign Options 

Transactions 

CFTC 02/17/12 Yes No No Yes Yes
Appendix II: Tables Listing Dodd-Frank Act 

Rules Effective as of July 23, 2012

Page 82 GAO-13-101 Dodd-Frank Act Regulations

Rulemaking

Responsible 

regulator Effective date

Did regulator 

identify the 

rule as 

having 

significant 

economic 

impact?

Did regulator 

quantify costs 

of final rule 

other than 

PRA costs?

Did 

regulator 

quantify 

benefits of 

final rule?

Did regulator 

qualitatively 

identify costs 

of final rule?

Did regulator 

qualitatively 

identify 

benefits of 

final rule?

Registration of Foreign 

Boards of Trade 

CFTC 02/21/12 No Yes No Yes Yes

Net Worth Standard for 

Accredited Investors 

SEC 02/27/12 Yes No No Yes Yes

Real-Time Reporting of 

Swap Transaction Data 

CFTC 03/09/12 Yes No No Yes Yes

Swap Data Recordkeeping 

and Reporting Requirements

CFTC 03/13/12 Yes No No Yes Yes

Registration of Swap 

Dealers and Major Swap 

Participants 

CFTC 03/19/12 No Yes No Yes Yes

Reporting by Investment 

Advisers to Private Funds 

and Certain Commodity Pool 

Operators and Commodity 

Trading Advisors on Form 

PF 

SEC and CFTC 03/31/12 Yes No No Yes Yes

Resolution Plans Required 

for Insured Depository 

Institutions With $50 Billion 

or More in Total Assets

FDIC 04/01/12 No No No Yes Yes

Protection of Cleared Swaps 

Customer Contracts and 

Collateral; Conforming 

Amendments to the 

Commodity Broker 

Bankruptcy Provisions 

CFTC 04/09/12 Yes No No Yes Yes

Exemptions for SecurityBased Swaps Issued by 

Certain Clearing Agencies 

SEC 04/16/12 No No No Yes Yes

Business Conduct 

Standards for Swap Dealers 

and Major Swap Participants 

CFTC 04/17/12 Yes No No Yes Yes

Commodity Pool Operators 

and Commodity Trading 

Advisers: Compliance 

Obligations

CFTC 04/24/12; 

07/02/12

No Yes No Yes Yes

Authority To Require 

Supervision and Regulation 

of Certain Nonbank 

Financial Companies

FSOC 05/11/12 No No No No Yes
Appendix II: Tables Listing Dodd-Frank Act 

Rules Effective as of July 23, 2012

Page 83 GAO-13-101 Dodd-Frank Act Regulations

Rulemaking

Responsible 

regulator Effective date

Did regulator 

identify the 

rule as 

having 

significant 

economic 

impact?

Did regulator 

quantify costs 

of final rule 

other than 

PRA costs?

Did 

regulator 

quantify 

benefits of 

final rule?

Did regulator 

qualitatively 

identify costs 

of final rule?

Did regulator 

qualitatively 

identify 

benefits of 

final rule?

Implementation of the 

Freedom of Information Act 

FSOC 05/11/12 No No No Yes No

Investment Advisor 

Performance Compensation 

Rule

SEC 05/22/12 Yes Yes Yes Yes Yes

Mutual Insurance Holding 

Company Treated as 

Insurance Company 

FDIC 05/30/12 No No No No No

Swap Dealer and Major 

Swap Participant 

Recordkeeping, Reporting, 

and Duties Rules; Futures 

Commission Merchant and 

Introducing Broker Conflicts 

of Interest Rules; and Chief 

Compliance Officer Rules for 

Swap Dealers, Major Swap 

Participants, and Futures 

Commission Merchants 

CFTC 06/04/12 Yes Yes No Yes Yes

Statement of Policy 

Regarding the Conformance 

Period for Entities Engaged 

in Prohibited Proprietary 

Trading or Private Equity 

Fund or Hedge Fund 

Activities 

Federal 

Reserve

06/08/12 N/A N/A N/A N/A N/A

Commodity Options CFTC 06/26/12 No No No Yes Yes

State Official Notification 

Rule 

CFPB 06/29/12 N/A N/A N/A N/A N/A

Rules Relating to 

Investigations 

CFPB 06/29/12 N/A N/A N/A N/A N/A

Rules of Practice for 

Adjudication Proceedings 

CFPB 06/29/12 N/A N/A N/A N/A N/A

Collection of Checks and 

Other Items by Federal 

Reserve Banks and Funds 

Transfers Through Fedwire: 

Elimination of ‘‘As-of 

Adjustments’’ and Other 

Clarifications 

Federal 

Reserve

07/12/12 No No No Yes Yes
Appendix II: Tables Listing Dodd-Frank Act 

Rules Effective as of July 23, 2012

Page 84 GAO-13-101 Dodd-Frank Act Regulations

Rulemaking

Responsible 

regulator Effective date

Did regulator 

identify the 

rule as 

having 

significant 

economic 

impact?

Did regulator 

quantify costs 

of final rule 

other than 

PRA costs?

Did 

regulator 

quantify 

benefits of 

final rule?

Did regulator 

qualitatively 

identify costs 

of final rule?

Did regulator 

qualitatively 

identify 

benefits of 

final rule?

Assessment of Fees on 

Large Bank Holding 

Companies and Nonbank 

Financial Companies 

Supervised by the Federal 

Reserve Board To Cover the 

Expenses of the Financial 

Research Fund

Treasury 07/20/12 Yes Yes No Yes Yes

Supervised Securities 

Holding Company 

Registration

Federal 

Reserve

07/20/12 No No No No No

Alternatives to the Use of 

External Credit Ratings in 

the Regulations of the OCC 

OCC 07/21/12; 

01/01/13

No No No a No No

Permissible Investments for 

Federal and State Savings 

Associations: Corporate 

Debt Securities 

FDIC 07/21/12 No No No Yes No

Guidance on Due Diligence 

Requirements for Savings 

Associations in Determining 

Whether a Corporate Debt 

Security Is Eligible for 

Investment 

FDIC 07/21/12 N/A N/A N/A N/A N/A

Guidance on Due Diligence 

Requirements in 

Determining Whether 

Securities Are Eligible for 

Investment

OCC 01/01/13 N/A c N/A N/A N/A N/A

Supervisory Guidance on 

Stress Testing for Banking 

Organizations With More 

Than $10 Billion in Total 

Consolidated Assets 

FDIC, Federal 

Reserve, and 

OCC

07/23/12 N/A N/A N/A a N/A N/A

Calculation of Maximum 

Obligation Limitation 

FDIC and 

Treasury

07/23/12 No No No No No

Further Definition of "Swap 

Dealer," "Security-Based 

Swap Dealer," "Major Swap 

Participant," "Major SecurityBased Swap Participant," 

and "Eligible Contract 

Participant" 

CFTC and SEC 07/23/12; 

12/31/12

Yes Yes No Yes Yes
Appendix II: Tables Listing Dodd-Frank Act 

Rules Effective as of July 23, 2012

Page 85 GAO-13-101 Dodd-Frank Act Regulations

Source: GAO summary of information from the Federal Register, the Federal Reserve Bank of St. Louis 

(http://www.stlouisfed.org/regreformrules/final.aspx) and Davis Polk & Wardwell LLP. 

Note: N/A refers to those rulemakings related to interpretive rules, general statements of policy, and 

rules that deal with agency organization, procedure, or practice, and thus not subject to 

Administrative Procedure Act (APA) requirements. a

OCC undertook an assessment of these rules, which included quantified total cost estimates, but the 

assessments were not published in the Federal Register notices. b

Compliance dates vary.

c

The following table lists the Dodd-Frank Act rules that we identified as 

final and effective during the scope period for our first review—July 21, 

2010, and July 21, 2011.

OCC’s guidance is included in this review, even though the effective date is outside our scope 

period, because the accompanying rule and similar FDIC guidance are included in this review.

Table 11: Dodd-Frank Act Rules Effective as of July 21, 2011

Rulemaking

Responsible 

regulator Effective date 

Did the regulator 

have some level of 

discretion?

Did the regulator 

identify the rule 

as having 

significant 

economic 

impact?

Deposit Insurance Regulations; Permanent Increase in 

Standard Coverage Amount; Advertisement of 

Membership; International Banking; Foreign Banks (75 

Fed. Reg. 49,363)

FDIC 8/13/2010 No No

Display of Official Sign; Permanent Increase in Standard 

Maximum Share (75 Fed. Reg. 53,841)

NCUA 9/2/2010 No No

Internal Controls over Financial Reporting in Exchange Act 

Periodic Reports (75 Fed. Reg. 57,385)

SEC 9/21/2010 No No

Commission Guidance Regarding Auditing, Attestation, 

and Related Professional Practice Standards Related to 

Brokers and Dealers (75 Fed. Reg. 60,616)

SEC 10/1/2010 n/a n/a

Removal from Regulation FD of the Exemption for Credit 

Rating Agencies (75 Fed. Reg. 61,050)

SEC 10/4/2010 No No

Regulation of Off-Exchange Retail Foreign Exchange 

Transactions and Intermediaries (75 Fed. Reg. 55,410)

CFTC 10/18/2010 Yes No

Deposit Insurance Regulations: Unlimited Coverage for 

Noninterest-Bearing Transaction Accounts (75 Fed. Reg. 

69,577)

FDIC 12/31/2010 No No

Designated Reserve Ratio (75 Fed. Reg. 79,286) FDIC 1/1/2011 Yes No

Rules of Practice – Handling of Proposed Rule Changes 

Submitted by Self-Regulatory Organizations (76 Fed. Reg. 

4066)

SEC 1/24/2011 n/a n/a

Deposit Insurance Regulations; Unlimited Coverage for 

Noninterest-Bearing Transaction Accounts; Inclusion of 

Interest on Lawyers Trust Accounts (76 Fed. Reg. 4813)

FDIC 1/27/2011 No No
Appendix II: Tables Listing Dodd-Frank Act 

Rules Effective as of July 23, 2012

Page 86 GAO-13-101 Dodd-Frank Act Regulations

Rulemaking

Responsible 

regulator Effective date 

Did the regulator 

have some level of 

discretion?

Did the regulator 

identify the rule 

as having 

significant 

economic 

impact?

Issuer Review of Assets in Offerings of Asset-Back 

Securities (76 Fed. Reg. 4231)

SEC 3/28/2011 Yes Yes

Disclosure for Asset-Backed Securities Required by

Section 943 of the Dodd-Frank Wall Street Reform and 

Consumer Protection Act (76 Fed. Reg. 4489)

SEC 3/28/2011 Yes Yes

Conformance Period for Entities Engaged in Prohibited 

Proprietary Trading or Private Equity Fund or Hedge Fund 

Activities (76 Fed. Reg. 8265)

Federal Reserve 4/1/2011 Yes No

Assessments, Large Bank Pricing (76 Fed. Reg. 10,672) FDIC 4/1/2011 Yes No

Higher Rate Threshold for Escrow Requirements (76 Fed. 

Reg. 11,319)

Federal Reserve 4/1/2011 No No

Shareholder Approval of Executive Compensation and 

Golden Parachute Compensation (76 Fed. Reg. 6010)

SEC 4/4/2011 Yes Yes

Establishment of the FDIC Systemic Resolution Advisory 

Committee (76 Fed. Reg. 25,352)

FDIC 4/28/2011 n/a n/a

Order Directing Funding for the Governmental Accounting 

Standards Board (76 Fed. Reg. 28,247)

SEC 5/16/2011 n/a n/a

Share Insurance and Appendix (76 Fed. Reg. 30,250) NCUA 6/24/2011 No No

Modification of Treasury Regulations Pursuant to Section 

939A of the Dodd- Frank Wall Street Reform and 

Consumer Protection Act (76 Fed. Reg. 39,278)

Treasury 7/6/2011 No No

Retail Foreign Exchange Transactions (76 Fed. Reg. 

40,779)

FDIC 7/15/2011 Yes No

Retail Foreign Exchange Transactions (76 Fed. Reg. 

41,375)

OCC 7/15/2011 Yes No

Beneficial Ownership Reporting Requirements and 

Security-Based Swaps (76 Fed. Reg. 34,579)

SEC 7/16/2011 Yes No

Prohibition Against Payment of Interest on Demand 

Deposits (76 Fed. Reg. 42,015)

Federal Reserve 7/21/2011 No No

List of OTS Regulations to be Enforced by the OCC and 

FDIC Pursuant to the Dodd-Frank Act (76 Fed. Reg. 

39,246)

OCC/FDIC 7/21/2011 n/a n/a

Office of Thrift Supervision Integration; Dodd-Frank Act 

Implementation (76 Fed. Reg. 43,549)

OCC 7/21/2011 n/a n/a

Exemptions for Advisers to Venture Capital Funds, Private 

Fund Advisers With Less Than $150 Million in Assets 

Under Management, and Foreign Private Advisers (76 

Fed. Reg. 39,646)

SEC 7/21/2011 Yes No

Consumer Transfer Protection Date (75 Fed. Reg. 57,252) CFPB 7/21/2011 n/a n/a
Appendix II: Tables Listing Dodd-Frank Act 

Rules Effective as of July 23, 2012

Page 87 GAO-13-101 Dodd-Frank Act Regulations

Rulemaking

Responsible 

regulator Effective date 

Did the regulator 

have some level of 

discretion?

Did the regulator 

identify the rule 

as having 

significant 

economic 

impact?

Identification of Enforceable Rules and Orders (76 Fed. 

Reg. 43,569)

CFPB 7/21/2011 n/a n/a

Consumer Leasing – Exempt Consumer Credit under 

Regulation M (75 Fed. Reg. 18,349)

Federal Reserve 7/21/2011 No No

Truth in Lending – Exempt Consumer Credit under 

Regulation Z (76 Fed. Reg. 18,354)

Federal Reserve 7/21/2011 No No

Interest on Deposits; Deposit Insurance Coverage (76 Fed. 

Reg. 41,392)

FDIC 7/21/2011 No No

Source: GAO summary of information from the Federal Register and Federal Reserve Bank of St. Louis 

(http://www.stlouisfed.org/regreformrules/final.aspx).

Note: N/A refers to those rulemakings related to interpretive rules, general statements of policy, and 

rules that deal with agency organization, procedure, or practice, and thus not subject to APA 

requirements. In some instances, we found that an agency had discretion to implement the statute, 

even though the discretion was limited, because the exercise of discretion was important to 

implementation.
Appendix III: Summary of Rulemakings Related 

to the Dodd-Frank Act Provisions Applicable to 

Systemically Important Financial Institutions

Page 88 GAO-13-101 Dodd-Frank Act Regulations

The Dodd-Frank Act contains several provisions that apply to nonbank 

financial companies designated by the Financial Stability Oversight 

Council for Federal Reserve supervision and enhanced prudential 

standards (nonbank SIFI) and bank holding companies with $50 billion or 

more in total consolidated assets (bank SIFI). Table 12 summarizes those 

provisions and the rulemakings, including their status, to implement those 

provisions.

Table 12: Rulemakings Implementing the Dodd-Frank Act Provisions Applicable to Systemically Important Financial 

Institutions and Their Status as of October 12, 2012

Dodd-Frank Act provision Rulemaking status

FSOC designation of Nonbanks for Federal Reserve supervision—Section 113 authorizes 

FSOC to determine that a nonbank financial company shall be subject to enhanced prudential 

standards and supervision by the Federal Reserve if FSOC determines that the company could 

pose a threat to the financial stability of the U.S.

FSOC final rule 77 Fed. Reg. 

21,637(Apr. 11, 2012)

FSOC’s final rule describes the manner in which FSOC intends to apply the statutory standards 

(for size, interconnectedness, complexity, leverage, and liquidity), and the procedures FSOC 

intends to follow when making a determination to designate a nonbank financial institution for 

Federal Reserve supervision under section 113 of the act. 

FSOC has not yet designated 

any nonbank financial companies

for Federal Reserve supervision 

Enhanced supervision and prudential standards—Sections 165 and 166 require the Federal 

Reserve to impose enhanced prudential standards and early remediation requirements on bank 

holding companies with $50 billion or more in total consolidated assets and nonbank financial 

companies designated by FSOC to prevent or mitigate risks to U.S. financial stability.

Federal Reserve proposed rule 

77 Fed. Reg. 594 (Jan. 5, 2012)

a

Enhanced risk-based capital and leverage requirements required under section 

165(b)(1)(A)(i)—capital plans: Bank holding companies with $50 billion or more in total 

consolidated assets and nonbank financial companies designated by FSOC would be subject 

to the Federal Reserve’s capital plan rule, which requires companies to submit an annual 

capital plan to the Board for review that, together with the proposed stress tests (below), would 

demonstrate to the Board that the company has robust, forward-looking capital planning 

processes that account for their unique risks and permit continued operations during times of 

stress.

b

proposal included in Jan. 5, 

2012 proposed rule

c

Enhanced risk-based capital and leverage requirements required under section 

165(b)(1)(A)(i)—capital surcharges: The Federal Reserve intends to issue a proposal imposing 

a quantitative risk-based capital surcharge for all or a subgroup of bank holding companies 

with $50 billion or more in total consolidated assets and nonbank financial companies 

designated by FSOC based on the Basel capital surcharge for Globally Systemically Important 

Banks (G-SIBs).

intention included in Jan. 5, 2012 

proposed rule

d

Enhanced liquidity requirements required under section 165(b)(1)(A)(ii)—liquidity risk 

management standards: Bank holding companies with $50 billion or more in total consolidated 

assets and nonbank financial companies designated by FSOC would be subject to liquidity 

risk management standards that require the companies, among other things, to project cash 

flow needs over various time horizons, stress test the projections at least monthly, determine a 

liquidity buffer, and maintain a contingency funding plan that identifies potential sources of 

liquidity strain and alternative sources of funding.

proposal included in Jan. 5, 2012 

proposed rule 

Appendix III: Summary of Rulemakings Related 

to the Dodd-Frank Act Provisions Applicable to 

Systemically Important Financial Institutions
Appendix III: Summary of Rulemakings Related 

to the Dodd-Frank Act Provisions Applicable to 

Systemically Important Financial Institutions

Page 89 GAO-13-101 Dodd-Frank Act Regulations

Dodd-Frank Act provision Rulemaking status

Enhanced liquidity requirements required under Section 165(b)(1)(A)(ii)—Basel liquidity ratios: 

The Federal Reserve intends to issue a proposal imposing quantitative liquidity requirements 

on all or a subgroup of bank holding companies with $50 billion or more in total consolidated 

assets and nonbank financial companies designated by FSOC based on Basel III liquidity 

ratios.

intention included in Jan. 5, 2012 

proposed rule

Credit exposure reports required under section 165(d)(2): Section 165 also requires the 

Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) to impose credit 

exposure reporting requirements on bank holding companies with $50 billion or more in total 

consolidated assets and nonbank financial companies designated by FSOC. The joint 

proposed rule would require the companies to report significant exposures to other covered 

companies and significant exposures that other covered companies have to that company

Federal Reserve and FDIC 

proposed rule 76 Fed. Reg. 

22,648 (Apr. 22, 2011)

Concentration limits required under section 165(e): As required by the act, the Federal 

Reserve would prohibit a bank holding company with $50 billion or more in total consolidated 

assets or a nonbank financial company designated by FSOC from having credit exposure to 

any unaffiliated company that exceeds 25 percent of the company’s capital stock and surplus. 

The Federal Reserve proposed a more stringent credit exposure limit of 10 percent between 

the largest, more complex financial institutions.

proposal included in January 5, 

2012 proposed rule

Stress Tests required under section 165(i): Bank holding companies with $50 billion or more in 

total consolidated assets and nonbank financial companies designated by FSOC are required 

by the act to conduct semi-annual company-run stress tests, and the Federal Reserve is 

required to conduct an annual stress test on each of the companiese

Federal Reserve final rule 77 

Fed. Reg. 62,378 (Oct. 12, 2012)

 

The final rule builds on the stress tests required under the capital plans that large, complex 

bank holding companies submitted to the Federal Reserve for supervision under the 

Supervisory Capital Assessment Program (SCAP) in 2009, the subsequent Comprehensive 

Capital and Analysis Review (CCAR) in 2011, and the capital plan rule effective Dec. 30, 

2011.

Resolution plans required under section 165(d)(1): Section 165 also requires the Federal 

Reserve and the Federal Deposit Insurance Corporation (FDIC) to require resolution plans 

from bank holding companies with $50 billion or more in total consolidated assets and 

nonbank financial companies designated by FSOC.

Federal Reserve and FDIC final 

rule 76 Fed. Reg. 67,323 (Nov. 

1, 2011)

The joint final rule requires each plan to include, among other things, information about the 

company’s ownership structure, core business lines, and critical operations, and a strategic 

analysis of how the SIFI can be resolved under the U.S. Bankruptcy Code in a way that would 

not pose systemic risk to the financial systemf

Debt-to-Equity Limits under section 165(j): Section 165(j) provides that the Federal Reserve 

must require a bank holding company with $50 billion or more in total consolidated assets or a 

nonbank financial company designated by FSOC to maintain a debt-to-equity ratio of no more 

than 15-to-1, upon a determination by the Council that (i) such company poses a grave threat 

to the financial stability of the United States and (ii) the imposition of such a requirement is 

necessary to mitigate the risk that the company poses to U.S. financial stability

proposal included in Jan. 5, 2012 

proposed rule

Early remediation requirements under section 166: Section 166 requires the Federal Reserve, 

in consultation with FSOC and FDIC, to prescribe regulations to provide for the early 

remediation of financial distress of bank holding companies with $50 billion or more in total 

consolidated assets and nonbank financial companies designated by FSOC.

proposal included in Jan. 5, 2012 

proposed rule

The proposed requirements would include a number of triggers for remediation, including 

capital levels, stress test results, and risk management weaknesses. In certain situations, the 

Federal Reserve would impose restrictions on growth, assets, acquisitions, capital distributions 

and executive compensation, and other activities that the Federal Reserve deems appropriate.
Appendix III: Summary of Rulemakings Related 

to the Dodd-Frank Act Provisions Applicable to 

Systemically Important Financial Institutions

Page 90 GAO-13-101 Dodd-Frank Act Regulations

Dodd-Frank Act provision Rulemaking status

FDIC Orderly Liquidation Authority—Title II gives the FDIC new orderly liquidation authority to 

act as a receiver of troubled nonbank financial companies designated by FSOC.

FDIC final rule 76 Fed. Reg. 

41,626 (July 15, 2011)

The FDIC has issued and expects to issue a number of rules to exercise this new authority. The 

FDIC indicated that the July 15, 2011 rule represents the culmination of the initial phase of such 

rulemaking.

Federal Reserve authority to impose mitigatory actions on certain companies determined to 

pose a grave threat to financial stability—Section 121(a) allows the Federal Reserve, with a 

two-thirds vote by FSOC, to impose certain additional restrictions on bank holding companies with 

$50 billion or more in total consolidated assets and nonbank financial companies designated by 

FSOC determined to pose a grave threat to the financial stability of the United States, including 

limiting mergers and acquisitions, requiring the company to terminate activities, or requiring the 

company to sell or transfer assets or off-balance-sheet items to unaffiliated entities.

No rules issued

Collins Amendment—Section 171(b) requires the appropriate federal banking agencies to 

establish permanent minimum risk-based capital and leverage floors on insured depository 

institutions, depository institution holding companies, and nonbank financial companies designated 

by FSOC. 

Federal Reserve, FDIC, and 

OCC final rule

Under the final rule, these institutions must calculate their floors using the minimum risk-based 

capital and leverage requirements under the prompt corrective action framework implementing 

section 38 of the Federal Deposit Insurance Act, which currently are Basel I’s general risk-based 

capital rules. 

76 Fed. Reg. 37,620 (June 28, 

2011) 

Concentration Limit/ liability cap on large financial institutions—Section 622 establishes, 

subject to recommendations by FSOC, a financial sector concentration limit that generally prohibits 

a financial company from merging or consolidating with, acquiring all or substantially all of the 

assets of, or otherwise acquiring control of, another company if the resulting company’s 

consolidated liabilities would exceed 10 percent of the aggregate consolidated liabilities of all 

financial companies.

No rules issued

g

Source: Dodd-Frank Act, Federal Register, and other documents from regulators and FSOC. 

a

Section 165 also directs the Federal Reserve to impose enhanced prudential standards for bank 

holding companies with $50 billion or more in total consolidated assets and nonbank financial 

companies designated by FSOC regarding overall risk management, which also were proposed in the 

January 5, 2012, rule. Additionally, section 115 also authorizes FSOC to recommend additional 

enhanced prudential standards for bank holding companies with $50 billion or more in total 

consolidated assets and nonbank financial companies designated by FSOC to the Federal Reserve. b

In this January 5, 2012, proposed rule, the Federal Reserve proposed rules to implement certain but 

not all of the requirements of sections 165 and 166 of the Dodd-Frank Act. c

Bank SIFIs are already required to comply with the capital plan rule. The Federal Reserve issued its 

final capital plans rule on December 1, 2011 (76 Fed. Reg. 74,631).

d

In November 2011, the Financial Stability Board (FSB) identified 29 G-SIBs and indicated it would 

update this list annually each November. FSB updated this list on November 1, 2012. The updated 

list contains 28 G-SIBs; the same eight U.S. bank SIFIs were designated as G-SIBs in 2011 and 

2012. Additionally, on November 1, 2012, FSB allocated each G-SIB into a bucket corresponding to 

its different levels of capital surcharge.

e

Section 165(i)(2) of the Act requires that any financial company with more than $10 billion in total 

consolidated assets and that is regulated by a federal financial regulatory agency also be subject to

company-run stress tests. The Federal Reserve issued a separate rule to implement this requirement. 

77 Fed. Reg. 62,396 (Oct. 12, 2012).

f

Bank SIFIs with at least $250 billion in total nonbank assets were required to submit their first 

resolution plans by July 1, 2012.

g

FSOC finalized a report and issued recommendations on implementing this provision. FSOC asked 

for comments on its recommendations. Financial Stability Oversight Council, Study & 

Recommendations Regarding Concentration Limits on Large Financial Companies (Washington, 

D.C.: January 2011). 
Appendix IV: Econometric Analyses of the 

Impact of Enhanced Regulation and Oversight 

on SIFIs

Page 91 GAO-13-101 Dodd-Frank Act Regulations

We conducted an econometric analysis to assess the impact of the DoddFrank Act’s new requirements for bank SIFIs on (1) the cost of credit they 

provide and (2) their safety and soundness. Our multivariate econometric 

model used a difference-in-difference design that exploits the fact that the 

Dodd-Frank Act subjects bank holding companies with total consolidated 

assets of $50 billion or more to enhanced regulation by the Federal 

Reserve but not others, so we can view bank holding companies with 

total consolidated assets of $50 billion or more (bank SIFIs) as the 

treatment group and other bank holding companies as the control group. 

We compared the changes in the characteristics of U.S. bank SIFIs over 

time to changes in the characteristics of other U.S. bank holding 

companies over time. All else being equal, the difference in the 

differences is the impact of new requirements for bank SIFIs primarily tied 

to enhanced regulation and oversight under the Federal Reserve.

Our general regression specification is the following:

ybq = αb + βq + γqSIFIbq + X’bqΘ + εbq

where b denotes the bank holding company, q denotes the quarter, ybq is 

the dependent variable, αb is a bank holding company-specific intercept, 

βq is a quarter-specific intercept, SIFIbq is an indicator variable that equals 

1 if bank holding company b is a SIFI in quarter q and 0 otherwise, Xbq is 

a list of other independent variables, and εbq is an error term. We 

estimated the parameters of the model using quarterly data on top-tier 

bank holding companies for the period from the first quarter of 2006 to 

the second quarter of 2012.

The parameters of interest are the γq, the coefficients on the SIFI 

indicators in the quarters starting with the treatment start date of the third 

quarter of 2010 through the second quarter of 2012. The Dodd-Frank Act 

was enacted in July 2010 (the third quarter of 2010), so the SIFI indicator 

is equal to zero for all bank holding companies for all quarters from the 

first quarter of 2006 to the second quarter of 2010. The SIFI indicator is 

equal to 1 for all bank holding companies with assets of $50 billion or 

more for the third quarter of 2010 through the second quarter of 2012 and 

the SIFI indicator is equal to zero for all other bank holding companies for 

those quarters. Thus, for quarters from the third of 2010 to the second of 

2012, the parameter γq measures the average difference in the dependent 

variable between bank SIFIs and other bank holding companies in those 

quarters relative to the base quarter.

Appendix IV: Econometric Analyses of the 

Impact of Enhanced Regulation and 

Oversight on SIFIs 

Methodology 
Appendix IV: Econometric Analyses of the 

Impact of Enhanced Regulation and Oversight 

on SIFIs

Page 92 GAO-13-101 Dodd-Frank Act Regulations

We use different dependent variables (ybq) to estimate the impacts of the 

new requirements for SIFIs on the cost of credit provided by bank SIFIs 

and on various aspects of bank SIFIs’ safety and soundness, including 

capital adequacy, asset quality, earnings, and liquidity.

• Funding cost. A bank holding company’s funding cost is the cost of 

deposits or liabilities that it then uses to make loans or otherwise 

acquire assets. More specifically, a bank holding company’s funding 

cost is the interest rate it pays when it borrows funds. All else being 

equal, the greater a bank holding company’s funding cost, the greater 

the interest rate it charges when it makes loans. We measure funding 

cost as an institution’s interest expense as a percent of interestbearing liabilities.

• Capital adequacy. Capital absorbs losses, promotes public 

confidence, helps restrict excessive asset growth, and provides 

protection to creditors. We use two alternative measures of capital 

adequacy: tangible common equity as a percent of total assets and 

tangible common equity as a percent of risk-weighted assets.

• Asset quality. Asset quality reflects the quantity of existing and 

potential credit risk associated with the institution’s loan and 

investment portfolios and other assets, as well as off-balance sheet 

transactions. Asset quality also reflects the ability of management to 

identify and manage credit risk. We measure asset quality as 

performing assets as a percent of total assets, where performing 

assets are equal to total assets less assets 90 days or more past due 

and still accruing interest, assets in non-accrual status, and other real 

estate owned.

• Earnings. Earnings are the initial safeguard against the risks of 

engaging in the banking business and represent the first line of 

defense against capital depletion that can result from declining asset 

values. We measure earnings as net income as a percent of total 

assets.

• Liquidity. Liquidity represents the ability to fund assets and meet 

obligations as they become due, and liquidity risk is the risk of not 

being able to obtain funds at a reasonable price within a reasonable 

time period to meet obligations as they become due. We use two 

different variables to measure liquidity. The first variable is liquid 

assets as a percent of volatile liabilities. This variable is similar in spirit 

to the liquidity coverage ratio introduced by the Basel Committee on 

Banking Supervision and measures a bank holding company’s 

capacity to meet its liquidity needs under a significantly severe 

liquidity stress scenario. We measure liquid assets as the sum of cash 

and balances due from depository institutions, securities (less pledged 

securities), federal funds sold and reverse repurchases, and trading 
Appendix IV: Econometric Analyses of the 

Impact of Enhanced Regulation and Oversight 

on SIFIs

Page 93 GAO-13-101 Dodd-Frank Act Regulations

assets. We measure volatile liabilities as the sum of federal funds 

purchased and repurchase agreements, trading liabilities (less 

derivatives with negative fair value), other borrowed funds, deposits 

held in foreign offices, and large time deposits held in domestic 

offices. Large time deposits are defined as time deposits greater than 

$100,000 prior to March 2010 and as time deposits greater than 

$250,000 in and after March 2010.

The second liquidity variable is stable liabilities as a percent of total 

liabilities. This variable measures the extent to which a bank holding 

company relies on stable funding sources to finance its assets and 

activities. This variable is related in spirit to the net stable funding ratio 

introduced by the Basel Committee on Banking Supervision, which 

measures the amount of stable funding based on the liquidity 

characteristics of an institution’s assets and activities over a 1 year 

horizon. We measure stable funding as total liabilities minus volatile 

liabilities as described earlier.

Finally, we include a limited number of independent variables (Xbq) to 

control for things that may differentially affect SIFIs and non-SIFIs in the 

quarters since the Dodd-Frank Act was enacted. We include these 

variables to reduce the likelihood that our estimates of the impact of new 

requirements for SIFIs are reflecting something other than the impact of 

the Dodd-Frank Act’s new requirements for SIFIs.

• Nontraditional income. Nontraditional income generally captures 

income from capital market activities. Bank holding companies with 

more nontraditional income are likely to have different business 

models than those with more income from traditional banking 

activities. Changes in capital markets in the period since the DoddFrank Act was enacted may have had a greater effect on bank holding 

companies with more nontraditional income. If bank SIFIs typically 

have more nontraditional income than other bank holding companies, 

then changes in capital markets in the time since the Dodd-Frank Act 

was enacted may have differentially affected the two groups. We 

measure nontraditional income as the sum of trading revenue; 

investment banking, advisory, brokerage, and underwriting fees and 

commissions; venture capital revenue; insurance commissions and 

fees; and interest income from trading assets less associated interest 

expense, and we express nontraditional income as a percent of 

operating revenue.

• Securitization income. Bank holding companies with more income 

from securitization are likely to have different business models than 

those with more income from traditional banking associated with an 
Appendix IV: Econometric Analyses of the 

Impact of Enhanced Regulation and Oversight 

on SIFIs

Page 94 GAO-13-101 Dodd-Frank Act Regulations

originate-to-hold strategy for loans. Changes in the market for 

securitized products in the period since the Dodd-Frank Act was 

enacted may thus have had a greater effect on bank holding 

companies with more securitization income. If bank SIFIs typically 

have more securitization income than other bank holding companies, 

then changes in the market for securitized products in the time since 

the Dodd-Frank Act was enacted may have differentially affected the 

two groups. We measure securitization income as the sum of net 

servicing fees, net securitization income, and interest and dividend 

income on mortgage-backed securities minus associated interest 

expense, and we express securitization as a percent of operating 

revenue. Operating revenue is the sum of interest income and 

noninterest income less interest expense and loan loss provisions.

• Foreign exposure. Changes in other countries, such as the 

sovereign debt crisis in Europe, may have a larger effect on bank 

holding companies with more foreign exposure. If bank SIFIs typically 

have more foreign exposure than other bank holding companies, then 

changes in foreign markets may have differentially affected the two 

groups. We measure foreign exposure as the sum of foreign debt 

securities (held-to-maturity and available-for-sale), foreign bank loans, 

commercial and industrial loans to non-U.S. addresses, and foreign 

government loans. We express foreign exposure as a percent of total 

assets.

• Size. We include size because bank SIFIs tend to be larger than other 

bank holding companies, and market pressures or other forces not 

otherwise accounted for may have differentially affected large and 

small bank holding companies in the time since the Dodd-Frank Act 

was enacted. We measure the size of a bank holding company as the 

natural logarithm of its total assets.

• TARP participation. We control for whether or not a bank holding 

company participated in the Troubled Asset Relief Program (TARP) to 

differentiate any impact that this program may have had from the

impact of the Dodd-Frank Act. 

We also conducted several sets of robustness checks:

• We restricted our sample to the set of institutions with assets that are 

“close” to the $50 billion cutoff for enhanced prudential regulation for 

bank SIFIs. Specifically, we analyzed two restricted samples of bank 

holding companies: (1) bank holding companies with assets between 

$1 billion and $100 billion and (2) bank holding companies with assets 

between $25 billion and $75 billion.
Appendix IV: Econometric Analyses of the 

Impact of Enhanced Regulation and Oversight 

on SIFIs

Page 95 GAO-13-101 Dodd-Frank Act Regulations

• We examined different treatment start dates. Specifically, we allowed 

the Dodd-Frank Act’s new requirements for SIFIs to have an impact in 

2009q3, 1 year prior to the passage of the act. We did so to allow for 

the possibility that institutions began to react to the act’s requirements 

in anticipation of the act being passed.

• We analyzed alternative measures of capital adequacy, including 

equity capital as a percent of total assets and Tier 1 capital as a 

percent of risk-weighted assets.

• We analyzed commercial banks and savings banks (banks). In this 

case, we identified a bank as a SIFI if it is a subsidiary of a SIFI bank 

holding company. 

We conducted our analysis using quarterly data on bank holding 

companies from the Federal Reserve Board and SNL Financial for the 

period from the first quarter of 2006 to the second quarter of 2012. We 

also used quarterly data on commercial banks and savings banks from 

the Federal Deposit Insurance Corporation (FDIC), Federal Financial 

Institutions Exanimation Council (FFIEC), and SNL Financial for the same 

time period for one of our robustness checks.

The Dodd-Frank Act appears to be associated with an increase in bank 

SIFIs’ funding costs in the second quarter of 2012, but not in other 

quarters (see table 13). Over the period from the third quarter of 2010 to 

the second quarter of 2012, bank SIFIs’ funding costs ranged from about 

0.02 percentage points lower to about 0.05 percentage points higher than 

they otherwise would have been since the Dodd-Frank Act. As a group, 

the estimates are jointly significant. However, the individual estimates are 

not significantly different from zero for quarters other than the second 

quarter of 2012. These estimates suggest that the Dodd-Frank Act’s new 

requirements for SIFIs have had little effect on bank SIFIs’ funding costs. 

To the extent that borrowing costs are a function of funding costs, the 

new requirements for SIFIs likely have had little effect on the cost of credit 

thus far.1

 

1

The cost of credit is determined by many factors other than bank SIFIs’ cost of funding, 

including expected credit losses and administrative costs, as well as overall demand for 

credit and the availability of credit from other lenders. 

Data

Results 
Appendix IV: Econometric Analyses of the 

Impact of Enhanced Regulation and Oversight 

on SIFIs

Page 96 GAO-13-101 Dodd-Frank Act Regulations

Table 13: Estimated Impacts of the Dodd-Frank Act on Bank SIFIs, from Third Quarter of 2010 through Second Quarter of 

2012 (percentage points)

Cost of credit 

indicator Safety and soundness indicators

Funding cost Capital adequacy Asset quality Earnings Liquidity

Interest 

expense 

(% interestbearing 

liabilities)

Tangible 

common 

equity 

(% assets)

Tangible 

common equity 

(% riskweighted 

assets)

Performing 

assets 

(% assets)

Net income 

(% assets)

Liquid 

assets 

(% volatile 

liabilities)

Stable 

liabilities 

(% liabilities)

2010 Q3 -0.02 1.16** 1.70** 1.04** 0.14** 3.58 3.64**

(0.02) (0.20) (0.30) (0.19) (0.04) (6.41) (0.92)

2010 Q4 0.00 1.54** 2.21** 1.20** 0.24** 4.19 3.79**

(0.02) (0.23) (0.36) (0.19) (0.05) (6.55) (0.97)

2011 Q1 0.02 1.58** 2.19** 1.26** 0.13** -4.89 2.82**

(0.02) (0.24) (0.39) (0.20) (0.04) (6.70) (1.02)

2011 Q2 0.03 1.46** 2.02** 1.32** 0.11** -2.68 3.54**

(0.02) (0.24) (0.39) (0.21) (0.04) (7.17) (1.02)

2011 Q3 0.01 1.42** 1.96** 1.30** 0.10** 2.25 5.22**

(0.02) (0.25) (0.38) (0.21) (0.04) (8.19) (1.10)

2011 Q4 0.02 1.47** 1.98** 1.16** -0.00 -4.26 5.67**

(0.02) (0.26) (0.43) (0.22) (0.10) (9.20) (1.22)

2012 Q1 0.03 1.66** 2.17** 1.19** 0.03 -2.15 5.14**

(0.02) (0.25) (0.41) (0.21) (0.04) (10.89) (1.27)

2012 Q2 0.05** 1.63** 2.24** 1.17** -0.01 -2.63 5.29**

(0.02) (0.28) (0.50) (0.23) (0.04) (10.60) (1.22)

Number of 

observations

25,953 25,953 25,953 25,953 25,953 25,953 25,953

Within Rsquared0.92 0.06 0.10 0.38 0.16 0.22 0.20

Number of 

bank holding 

companies 

1,374 1,374 1,374 1,374 1,374 1,374 1,374

All impacts 

jointly 

significant?

Yes Yes Yes Yes Yes Yes Yes

Source: GAO analysis of data from the Federal Reserve and SNL Financial.

Notes: Estimated impacts are on the variable in the column header for the quarter in the row header. 

Robust standard errors are in parentheses. We analyzed data for bank holding companies for the 

period from the first quarter of 2006 to the second quarter of 2012. We estimated the impact of the 

new requirements for bank SIFIs by regressing the variables listed in the table on indicators for each 

bank holding company in the sample, indicators for each quarter, indicators for whether or not a bank 
Appendix IV: Econometric Analyses of the 

Impact of Enhanced Regulation and Oversight 

on SIFIs

Page 97 GAO-13-101 Dodd-Frank Act Regulations

holding company is a SIFI for the period from the third quarter of 2010 to the second quarter of 2012, 

and other variables controlling for size, foreign exposure, securitization income, other nontraditional 

income, and participation in the Troubled Asset Relief Program. Estimated impacts are the 

coefficients on the indicators for whether or not a bank holding company is a SIFI for quarters from 

the third of 2010 to the second of 2012. We used an F-test to assess whether the coefficients on the 

SIFI indicators for all quarters are jointly significant. We used t-tests to assess whether the coefficient 

on the SIFI indicator for a specific quarter is significant. We used the 5 percent level as our criteria 

for both joint and individual significance. **=statistically significant at the 5 percent level.

Our results suggest that the Dodd-Frank Act is associated with 

improvements in most aspects of bank SIFIs’ safety and soundness. 

Bank SIFIs appear to be holding more capital than they otherwise would 

have held since the Dodd-Frank Act was enacted. The quality of assets 

on the balance sheets of bank SIFIs also seems to have improved since 

enactment. The act is associated with higher earnings for bank SIFIs in 

the first four quarters after enactment. It is also associated with improved 

liquidity as measured by the extent to which a bank holding company is 

using stable sources of funding. Only liquidity measured by the capacity 

of a bank holding company’s liquid assets to cover its volatile liabilities 

has not clearly improved since the enactment of the act. Thus, the DoddFrank Act appears to be broadly associated with improvements in most 

indicators of safety and soundness for bank SIFIs.

Our approach allows us to partially differentiate changes in funding costs, 

capital adequacy, asset quality, earnings, and liquidity associated with the 

Dodd-Frank Act from changes due to other factors. However, several 

factors make isolating and measuring the impact of the Dodd-Frank Act’s 

new requirements for SIFIs challenging. The effects of the Dodd-Frank 

Act cannot be differentiated from simultaneous changes in economic 

conditions, such as the pace of the recovery from the recent recession, or 

regulations, such as those stemming from Basel III, that may differentially 

affect bank SIFIs and other bank holding companies. In addition, many of 

the new requirements for SIFIs have yet to be implemented. For example, 

the Federal Reserve has indicated that it will impose a capital surcharge 

and liquidity ratios on at least some SIFIs, but the exact form and scope 

of these requirements is not yet known. Nevertheless, our estimates are 

suggestive of the initial effects of the Dodd-Frank Act on bank SIFIs and 

provide a baseline against which to compare future trends.

The results of our robustness checks are as follows:

• Our results are generally robust to restricting the set of bank holding 

companies we analyze to those with assets of $1 billion-$100 billion.

• Our results are not generally robust to restricting the set of bank 

holding companies we analyze to those with assets of $25 billion-$75 
Appendix IV: Econometric Analyses of the 

Impact of Enhanced Regulation and Oversight 

on SIFIs

Page 98 GAO-13-101 Dodd-Frank Act Regulations

billion, but this is likely to be a result of the small number of bank 

holding companies (29) that fit this criteria.

• Our results are generally robust to starting the “treatment” in 2009 Q3, 

1 year prior to the passage of the Dodd-Frank Act. In addition, our 

estimates suggest that the impact of new requirements for SIFIs of the 

Dodd-Frank Act may have preceded the enactment of the act itself. 

This finding is consistent with the theory that bank holding companies 

began to change their behavior in anticipation of the act’s 

requirements, perhaps as information about the content of the act 

became available and the likelihood of its passage increased. 

However, there may be other explanations, including anticipation of 

Basel III requirements, reactions to stress tests, and market pressures 

to improve capital adequacy and liquidity.

• Our results for the impact on capital adequacy are generally similar for 

alternative measures of capital adequacy.

• Our results for banks’ funding costs, asset quality, earnings, and 

liquidity as measured by liquid assets as a percent of volatile liabilities 

were generally similar to our baseline results for bank holding 

companies, but our results for capital adequacy and liquidity as 

measured by stable liabilities as a percent of total liabilities were not. 

The differences may reflect the impact of nonbank subsidiaries on 

bank holding companies or a number of other factors. 
Appendix V: Impact Analysis of the Debit Card 

Interchange Fees and Routing Rule

Page 99 GAO-13-101 Dodd-Frank Act Regulations

The Federal Reserve’s adoption of Regulation II (Debit Card Interchange 

Fees and Routing), which implements section 1075 of the Dodd-Frank 

Act, generally has reduced debit card interchange fees.1 However, debit 

card issuers, payment card networks, and merchants are continuing to 

adjust strategically to the rule; thus, the rule’s impact has not yet been 

fully realized. Typically, consumers use debit cards as a cashless form of 

payment that electronically accesses funds from a cardholder’s bank 

account. A consumer using a debit card authenticates and completes a 

transaction by entering a personal identification number (PIN) or a 

signature. The parties involved in a debit card transaction are (1) the 

customer or debit cardholder; (2) the bank that issued the debit card to 

the customer (issuer bank); (3) the merchant; (4) the merchant’s bank 

(called the acquirer bank); and (4) the payment card network that 

processes the transaction between the merchant acquirer bank and the 

issuer bank. In a debit transaction, the merchant receives the amount of 

the purchase minus a fee that it must pay to its acquirer bank. This fee 

includes the debit interchange fee that the acquirer bank pays to the 

issuer bank.2 Interchange fees generally combine an ad-valorem 

component, which depends on the amount of the transaction, and a fixedfee component.3 Additionally, before Regulation II was implemented, fees 

varied more widely based on, among other things, the type of merchant.4

Although payment card networks do not receive the debit interchange 

fees, they set the fees. Debit cards represent a two-sided market that 

 

1

76 Fed. Reg. 43,394 (Jul. 20, 2011).

2

Debit interchange fees generally are the same for all issuing banks participating in a 

network. For example, all issuers that use VISA signature as their card network generally 

receive the same interchange fees set by VISA, although the fees can vary based on the 

type of transaction and whether the issuer bank is covered or exempt from the fee cap. 

3

For example, according to VISA’s fee schedule as of October 2007, one interchange fee 

for a restaurant debit transaction was set at 1.19 percent of the transaction value plus 

$0.10. 

4

According to VISA’s fee schedule as of October 2007, for example, a $20 debit 

transaction at a restaurant could cost about $0.34 (subject to an interchange fee of 1.19% 

+ $0.10), while a $20 transaction at a car rental could cost about $0.42 (subject to an 

interchange fee of 1.36% + $0.15). 

Appendix V: Impact Analysis of the Debit 

Card Interchange Fees and Routing Rule 
Appendix V: Impact Analysis of the Debit Card 

Interchange Fees and Routing Rule

Page 100 GAO-13-101 Dodd-Frank Act Regulations

involves cardholders and merchants.5 Cardholders benefit if their cards 

are accepted by a wide range of merchants, and merchants benefit if their 

ability to accept cards results in higher sales. In theory, a card network 

sets its interchange fees to balance the demand on the two sides of the 

market. It sets interchange fees high enough to attract issuers to issue 

debit cards processed by the network but low enough for merchants to be 

willing to accept the debit cards.6 Before the enactment of section 1075 of 

the Dodd-Frank Act, debit interchange fees had been increasing, creating 

controversy in the industry about the appropriate level of debit 

interchange fees in the United States, which some have stated were 

among the highest in the world.7

Section 1075 amends the Electronic Fund Transfer Act (EFTA) by adding 

a new section 920 regarding interchange transaction fees and rules for 

payment card transactions. As required by EFTA section 920, Regulation 

II establishes standards for assessing whether debit card interchange 

fees received by issuers are reasonable and proportional to the costs 

incurred by issuers for electronic debit transactions. The rule sets a cap 

on the maximum permissible interchange fee that an issuer may receive 

for an electronic debit transaction at $0.21 per transaction, plus 5 basis 

points multiplied by the transaction’s value.

For example, some merchants stated 

that network competition led to higher, not lower, interchange fees as 

networks strived to attract issuer banks (who ultimately receive 

interchange fee revenue). 

8

 

5

See, for example, Marc Rysman, “The Economics of Two-Sided Markets,” Journal of 

Economic Perspectives, vol. 23, no. 3, (summer 2009), pp. 125-143. In general, a twosided market is one in which (1) two sets of agents interact through an intermediary or 

platform, and 2) the decisions of each set of agents affects the outcomes of the other set 

of agents, typically through an externality. In the case of debit cards, the intermediary is 

the network, and the two sets of agents are consumers and merchants. Neither 

consumers nor merchants will be interested in a network’s debit card if the other party is 

not. A successful debit card requires both consumer usage and merchant acceptance, 

where both consumers and merchants value each other’s participation.

An issuer bank that complies 

6

Debit cards are capable of processing a transaction over one or multiple networks. 

Consequently, when consumers present their debit cards to merchants to make 

purchases, it may be possible to complete a given transaction over several different debit 

card networks.

7

Terri Bradford and Fumiko Hayashi, Developments in Interchange Fees in the United 

States and Abroad, Payments System Research Briefing, Federal Reserve Bank of 

Kansas City (April 2008). 

8

76 Fed. Reg. 43,394 (July 20, 2011). 
Appendix V: Impact Analysis of the Debit Card 

Interchange Fees and Routing Rule

Page 101 GAO-13-101 Dodd-Frank Act Regulations

with Regulation II’s fraud-prevention standards may receive no more than 

an additional 1 cent per transaction.9 The fee cap became effective on 

October 1, 2011. However, as required by EFTA section 920, the rule 

exempts from the fee cap issuers that have, together with their affiliates, 

less than $10 billion in assets, and transactions made using debit cards 

issued pursuant to government-administered payment programs or 

certain reloadable prepaid cards. In addition, Regulation II prohibits 

issuers and card networks from restricting the number of networks over 

which electronic debit transactions may be processed to less than two 

unaffiliated networks.

10 This prohibition became effective on April 1, 2012. 

The rule further prohibits issuers and networks from inhibiting a merchant 

from directing the routing of an electronic debit transaction over any 

network allowed by the issuer.11 This prohibition became effective 

October 1, 2011.

Thus far, large banks that issue debit cards have experienced a decline in 

their debit interchange fees as a result of Regulation II, but small banks 

generally have not. As noted above, issuers that, together with their 

affiliates, have $10 billion or more in assets are subject to the debit card 

interchange fee cap. According to the Federal Reserve, 568 banks were 

subject to the fee cap in 2012 (covered issuers).12

 

9

77 Fed. Reg. 46,258 (Aug. 3. 2012). EFTA section 920 permits the Federal Reserve to 

allow for an adjustment to an interchange transaction fee that is reasonably necessary to 

make allowance for costs incurred by the issuer in preventing fraud in relation to electronic 

debit transactions, provided the issuer complies with standards established by the Federal 

Reserve relating to fraud prevention. 

Issuers below the $10 

billion asset threshold are exempt from the fee cap (exempt issuers). 

According to the Federal Reserve, over 14,300 banks, credit unions, 

1076 Fed. Reg. 43,394 (July 20, 2012). EFTA section 920 also requires the Federal 

Reserve to prescribe rules that prohibit issuers and payment card networks from 

restricting the number of networks on which an electronic debit transaction may be 

processed to one such network or two or more affiliated networks. 

1176 Fed. Reg. 43, 394 (July 20, 2012). EFTA section 920 also requires the Federal 

Reserve to prescribe rules prohibiting issuers and networks from inhibiting the ability of 

any person that accepts debit cards from directing the routing of electronic debit 

transactions over any network that may process such transactions. 

12These institutions were subject to the fee cap beginning July 1, 2012 because they had 

consolidated assets of $10 billion or more as of December 31, 2011. 

Initial Impact on Large and 

Small Banks
Appendix V: Impact Analysis of the Debit Card 

Interchange Fees and Routing Rule

Page 102 GAO-13-101 Dodd-Frank Act Regulations

savings and loans, and savings banks were exempt from the fee cap in 

2012.

13

Initial data collected by the Federal Reserve indicate that covered issuers 

have experienced a significant decline in their debit interchange fees and 

fee income as a result of Regulation II. Data published by the Federal 

Reserve show that 15 of 16 card networks provided a lower interchange 

fee, on average, to covered issuers after the rule took effect.14

Our own analysis also suggests that the fee cap is associated with 

reduced interchange fee income for covered banks.

Specifically, the data show that the average interchange fee received by 

covered issuers declined 52 percent, from $0.50 in the first three quarters 

of 2011 to $0.24 in the fourth quarter. During the same period, the 

interchange fee as a percentage of the average transaction value for 

covered issuers declined from 1.29 percent to 0.60 percent. 

15

 

13These institutions were exempt from the fee cap in 2012, because they had 

consolidated assets of less than $10 billion as of December 31, 2011. Institutions that 

qualified for the exemption during 2011 were those institutions that had, together with 

affiliates, assets of less than $10 billion as of December 31, 2010.

To further assess 

the impact of the fee cap on covered banks, we conducted an 

econometric analysis of debit and credit card interchange fee income 

earned by banks from the first quarter of 2008 through the second quarter 

of 2012. As discussed, Regulation II subjects covered issuers but not 

exempt issuers to the fee cap. This allows us to compare the incomes 

earned by covered and exempt banks before and after the fee cap’s 

effective date in the fourth quarter of 2011. All else being equal, the postcap changes in income among the two groups can be inferred as the 

effect of the fee cap on interchange fee income earned by covered banks. 

Our estimates suggest that interchange fees collected by covered banks, 

as a percent of their assets, were about 0.007 to 0.008 percentage points 

lower than they otherwise would have been in the absence of the fee cap. 

For a bank with assets of $50 billion, this amounts to $3.5 million to $4 

million in reduced interchange fee income.

14The Federal Reserve published data on interchange fees for 16 card networks from 

January 1, 2011, to December 31, 2011. According to Federal Reserve staff, totals 

published include data from two additional networks. 

15See appendix VI for details on our econometric analysis.
Appendix V: Impact Analysis of the Debit Card 

Interchange Fees and Routing Rule

Page 103 GAO-13-101 Dodd-Frank Act Regulations

In comparison, Regulation II’s fee cap appears initially to have had a 

limited impact on exempt issuers. As we recently reported, initial data 

collected by the Federal Reserve indicate that card networks largely have 

adopted a two-tiered interchange fee structure after the implementation of 

Regulation II, to the benefit of exempt issuers.16 Data published by the 

Federal Reserve from 16 card networks show 15 of 16 card networks

provided a higher interchange fee, on average, to exempt issuers than 

covered issuers after the rule took effect.17 The data further showed that 

the average interchange fee received by exempt issuers declined by 

$0.02, or around 5 percent, after the rule took effect—declining from 

$0.45 over the first three quarters of 2011 to $0.43 in the fourth quarter of 

2011.18 Over the same period, the interchange fee as a percentage of the 

average transaction value for exempt issuers declined from 1.16 to 1.10 

percent.19

Although the fee cap appeared to have a limited impact on exempt 

issuers, such issuers remain concerned about the potential for their 

interchange fee income to decline over the long term. For example, some 

have noted that (1) the prohibition on network exclusivity and routing 

restrictions may lead networks to lower their interchange fees, in part to 

encourage merchants to route debit card transactions through their 

networks; or (2) economic forces may cause networks not to maintain a 

two-tiered fee structure that provides a meaningful differential between 

 

16GAO, Community Banks and Credit Unions: Impact of the Dodd-Frank Act Depends 

Largely on Future Rulemakings, GAO-12-881 (Washington, D.C.: Sept. 13, 2012). A twotiered fee structure is one that offers different fee structures for exempt and covered 

issuers. For example, VISA USA Consumer Check Card fee schedule as of June 2012 set 

the interchange fee at the level of the cap for covered issuers, but kept the previous fee

structure for exempt banks. That is, exempt banks continue to collect a wide variety of 

interchange fees determined by, among other things, the merchant type.

17As mentioned earlier, the Federal Reserve published data on interchange fees for 16 

card networks from January 1, 2011, to December 31, 2011. According to Federal 

Reserve staff, totals published include data from two additional networks. 

18The Federal Reserve published data from 16 payment card networks individually. Eight 

networks reported a decline in their average interchange fee per transaction for exempt 

issuers—ranging from $0.01 to $0.04—after the rule took effect. Three networks reported 

no change in their average interchange fee for exempt issuers. Five networks reported an 

increase in their fee for exempt issuers—ranging from $0.01 to $0.03—after the rule took 

effect.

19The interchange fee as a percentage of the average transaction value is calculated by 

dividing the total interchange fees by the value of settled purchase transactions.
Appendix V: Impact Analysis of the Debit Card 

Interchange Fees and Routing Rule

Page 104 GAO-13-101 Dodd-Frank Act Regulations

fees for exempt and covered issuers. However, some merchants and 

others have noted that major card networks have adopted a two-tiered 

fee structure and have an incentive to maintain that structure to attract 

exempt issuers.20 

Regulation II’s fee cap generally has reduced debit card interchange fees, 

which likely has resulted or will result in savings for merchants. According 

to the Federal Reserve and industry experts, the merchant acquirer 

market is competitive. Thus, the decrease in interchange fees likely has 

translated or will translate into lower merchant acquirer fees. Some noted 

that large merchants likely reaped immediate benefits from the fee cap, 

because their acquirer fees probably were reduced when interchange 

fees declined. In contrast, they noted that smaller merchants often opt for 

blended fee structures under which, for example, the merchants may be 

charged a flat fee per electronic payment transaction and, thus, not 

immediately receive the benefit of decreases in interchange fees because 

merchants may still be locked into contracts that have these fee 

structures.

21

In its final rule, the Federal Reserve noted that merchants could be 

negatively affected if large issuers were able to persuade their customers 

to pay with credit cards rather than debit cards, since credit cards 

generally have higher interchange fees.

In either case, competition in the supply of acquirer services 

is expected to cause acquirer banks to adjust the fees they charge to 

merchants and pass on any savings to avoid losing merchant business. 

22

 

20A number of merchant associations have brought a lawsuit against the Federal Reserve, 

alleging that it failed to follow the intent of Congress regarding the amount of an 

interchange fee that an issuer could charge or receive. As of December 12, 2012, the suit 

had not been resolved.

While issuers can take this 

strategy, merchants also can provide incentives to consumers to 

encourage them to use debit cards instead of credit cards. The Dodd21According to the Federal Reserve, merchant discount fees generally follow two forms: 

interchange-plus pricing and blended. If an acquirer is charging an interchange-plus 

merchant discount, the acquirer passes through the exact amount of the interchange fee 

for each transaction. If an acquirer is charging a blended merchant discount, the acquirer 

charges the same discount regardless of the interchange fee that applies to each 

transaction. Depending on the fee structure, it may take some time before an acquirer 

bank passes on savings from lower debit card interchange fees. 

22For example, banks could try to eliminate debit card reward programs and offer 

relatively more attractive credit card rewards programs. 

Impact on Merchants and 

Consumers 
Appendix V: Impact Analysis of the Debit Card 

Interchange Fees and Routing Rule

Page 105 GAO-13-101 Dodd-Frank Act Regulations

Frank Act requires networks to allow merchants to offer discounts to 

consumers based on whether they pay by cash, check, debit card, or 

credit card.23 In addition, a recent report stated that an antitrust settlement 

between the Department of Justice and VISA and MasterCard requires 

the networks to loosen past restrictions on merchants’ ability to offer 

discounts to consumers based on the payment method, brand, and 

product. This allows merchants accepting cards by those networks to 

provide incentives to encourage customers to complete their debit 

transactions using their PIN rather than signature.24

Some types of merchants may be adversely affected by Regulation II. As 

mentioned earlier, the fee cap generally led payment card networks to set 

their debit interchange fees at the level of the cap for covered issuers. 

However, the interchange fee for small-ticket transactions, or transactions 

that are generally under $15, was sometimes below the fee cap before 

Regulation II became effective. For example, according to the 

International Franchise Association and the National Council of Chain 

Restaurants, before Regulation II a $5 transaction could incur 11.75 cents 

in debit interchange fees.

 GAO did not identify 

data on whether issuers or merchants are engaging in such strategies.

25

 

23EFTA Section 920(b)(2) prohibits a card network from establishing rules that prevent 

merchants from offering discounts or in-kind incentives based on the method of payment 

tendered to the extent that such discounts or incentives do not differentiate on the basis of 

the issuer or card network. According to a report by the Federal Reserve Bank of Kansas 

City, before the act, merchants were allowed by the Cash Discount Act to offer a discount 

to customers who pay with cash or check instead of credit cards, but networks did not 

allow merchants to offer a discount for paying with a debit card rather than a credit card. 

See Fumiko Hayashi, Discounts and Surcharges: Implications for Consumer Payment 

Choice, Payments System Research Briefing, Federal Reserve Bank of Kansas City (June 

2012).

Under the current fee cap of 21 cents plus 

24Fumiko Hayashi, Discounts and Surcharges: Implications for Consumer Payment 

Choice, Payments System Research Briefing, Federal Reserve Bank of Kansas City (June 

2012). According to the Federal Reserve, data collected from card networks in 2009 

showed that the interchange fee per signature debit transaction was, on average, about 

2.4 times that for a PIN debit transaction (2.6 times if calculated using the interchange fee 

as a percentage of the average transaction value). 

25According to the International Franchise Association and National Council of Chain 

Restaurants, these would have been the resulting interchange fees under the VISA and 

MasterCard small-ticket transaction fees published about 7 months prior to the effective 

date of the fee cap, both set at 1.55 percent and 4 cents. See comments to the proposed 

rule by the International Franchise Association & National Council of Chain Restaurants

available at

http://www.federalreserve.gov/apps/foia/ViewAllComments.aspx?doc_id=R-1404&doc_ver

=1. 
Appendix V: Impact Analysis of the Debit Card 

Interchange Fees and Routing Rule

Page 106 GAO-13-101 Dodd-Frank Act Regulations

0.05 percent of the transaction value, the interchange fee for a $5 

covered transaction is 21.25 cents, about 80 percent higher. As a result, 

merchants that have a high volume of small value transactions, such as 

quick serving restaurants, transit authorities, and self-service and vending 

operators, could be worse off after the adoption of Regulation II. 

It is not practical to measure the extent to which consumers in the many 

markets where debit transactions are possible have been affected by 

Regulation II.26 First, one probable outcome is that at least a fraction of 

the merchants have passed some of their cost savings onto consumers. 

As noted by the Federal Reserve, whether merchants reduce their prices 

as a result of lower interchange fees will depend on the competitiveness 

of the various retail markets. In a competitive market with low margins, 

merchants likely have to pass on at least part of their cost savings to 

consumers. On the other hand, the loss in debit interchange fee income 

by large banks may lead them to seek ways to recover that lost income. 

As mentioned by the Federal Reserve, banks may try to recoup lost 

interchange fee income by introducing new bank service and product 

fees, possibly making banking services too costly for at least some 

customers. Our analysis (discussed previously) suggests that covered 

banks have recovered some of their lost interchange fee revenue, such 

as through increased revenue from service charges on deposit 

accounts.

27

 

26As the Federal Reserve indicated in its final rulemaking, it is not practical to measure the 

extent to which changes in interchange fees translate into changes in merchant prices 

because of the many other factors that also influence those prices.

 

27These service charges include amounts charged to depositors in domestic offices (1) for 

account maintenance, (2) for failure to maintain specified minimum deposit balances, (3) 

based on the number of checks drawn on and deposits made, (4) for checks drawn on socalled "no minimum balance" deposit accounts, (5) for withdrawals from nontransaction 

deposit accounts, (6) for the closing of savings accounts before a specified minimum 

period of time has elapsed, (7) for accounts which have remained inactive for extended 

periods of time or which have become dormant, (8) for deposits to or withdrawals from 

deposit accounts through the use of automated teller machines or remote service units, 

(9) for the processing of checks drawn against insufficient funds, (10) for issuing stop 

payment orders, (11) for certifying checks, and (12) for the accumulation or disbursement 

of funds deposited to Individual Retirement Accounts or Keogh Plan accounts when not 

handled by the bank's trust department. Our analysis also suggests that covered issuer 

banks’ total income has not changed significantly after Regulation II’s fee cap became 

effective. Total income earned by covered banks, as a percent of assets, ranged from 

0.10 percentage points lower to 0.05 percentage points higher after October 1, 2011, but 

these estimates are not statistically significant at the 5 percent level. See appendix VI for 

details of our econometric analysis. 
Appendix V: Impact Analysis of the Debit Card 

Interchange Fees and Routing Rule

Page 107 GAO-13-101 Dodd-Frank Act Regulations

Historically, issuers have determined which and how many signature and 

PIN networks may process their debit card transactions. Before and after 

Regulation II, issuers generally use only one signature network (e.g., 

VISA or MasterCard) to process their debit card transactions that are 

completed using a signature. Additionally, as stated in the final rule, 

before Regulation II issuer banks, or in some cases, networks controlled 

the merchant routing of debit transactions. For example, an issuer bank 

could require a PIN transaction to be routed over a particular network, 

even if other PIN networks were available to route the transaction. The 

rule also states that, prior to Regulation II, issuer banks were able to limit 

the networks enabled on their cards through exclusive contracts with 

networks. For example, some issuers had agreed to restrict their cards’ 

signature debit functionality to a single signature debit network and their 

PIN debit functionality to the signature network’s affiliated PIN network. 

According to the Federal Reserve’s 2009 survey data of large issuers, 

most debit cards from large bank issuers carried only one PIN network, 

and the cards’ PIN and signature networks typically were affiliated with 

each other.28

Regulation II contains two provisions that serve to provide merchants with 

the option of selecting the network to process their debit card transactions 

and a greater number of network options. First, the rule prohibits all 

issuers and networks from inhibiting a merchant from directing the routing 

of a transaction over any network allowed by the issuer. This provision 

became effective on October 1, 2011. For example, if an issuer’s debit 

card has two or more PIN networks, the merchant rather than the issuer 

can chose which network processes a PIN transaction, such as the one 

charging the lowest interchange fee. Second, the rule prohibits all issuers 

and networks from restricting the number of networks over which debit 

transactions may be processed to fewer than two unaffiliated networks. 

This provision became effective on April 1, 2012. As a result, issuers no 

longer may allow only VISA’s or MasterCard’s signature and affiliated PIN 

networks to process their debit card transactions. Instead, such issuers 

 

 

28According to the survey, about 131.1 million out of 174.2 million debit cards that 

processed PIN transactions (or about 75 percent) carried only one PIN network. 

Additionally, about 105.5 million of the debit cards with one PIN network, or 80 percent, 

had a signature network that was affiliated with the PIN network. The final rule states that 

the Federal Reserve surveyed bank issuers that would be subject to the interchange fee 

standards (that is, banks with consolidated assets of $10 billion or more). 

Impact on Competition 

and Interchange Fees 
Appendix V: Impact Analysis of the Debit Card 

Interchange Fees and Routing Rule

Page 108 GAO-13-101 Dodd-Frank Act Regulations

would need to add an unaffiliated signature or PIN network if they do not 

already have an unaffiliated network.

29

Regulation II’s prohibitions may have a limited impact on increasing 

competition and, in turn, lowering interchange fees, because issuers 

largely control which networks may process their debit card transactions. 

For example, issuers did not likely comply with Regulation II by adding a 

second unaffiliated signature network because, according to the final rule, 

networks and issuers stated it would be too costly to reconfigure cards 

and merchant equipment to enable the processing of two signature 

networks associated with one card.

 

30

Going forward, issuers may be able to act strategically to limit competition 

over debit card interchange fees through their control over which 

networks may process their debit card transactions. First, for covered 

transactions subject to the fee cap, both signature and PIN networks have 

an incentive to set their interchange fees at the fee cap.

Consequently, merchants generally 

have only one network option for transactions completed by signature. 

Additionally, issuers can comply by having an unaffiliated signature 

network and PIN network, which means that merchants may have only 

one network routing choice once a customer decides to use her signature 

or her PIN. Therefore, even though Regulation II provides merchants with 

the authority to choose the network over which to route debit card 

transactions, merchants may not have a choice about which network to 

route the debit card transaction. 

31

 

29Data from the Federal Reserve’s survey of large issuer banks in 2009 showed that of 

almost 159 million of the banks’ debit cards that carried both signature and PIN 

networks,105.5 million (or 66 percent) of them enabled only one signature network and its 

affiliated PIN network. Such banks likely added another PIN network to their cards to 

comply with Regulation II. 

If a network 

lowered its fees below the cap, such as to attract merchant routing 

business, issuers using that network could replace it with a network that 

sets its fees at the cap. With networks charging similar interchange fees 

30In its rule proposal, the Federal Reserve considered requiring issuers to allow at least 

two unaffiliated signature networks and two unaffiliated PIN networks to process their 

debit card transactions. 75 Fed. Reg. 81,722 (Dec. 28, 2010). The Federal Reserve 

rejected this possibility in the final rule.

31According to their published interchange fee schedules as of October 29, 2012, both 

VISA and MasterCard have set debit interchange fees for covered transactions at the 

mandated cap. 
Appendix V: Impact Analysis of the Debit Card 

Interchange Fees and Routing Rule

Page 109 GAO-13-101 Dodd-Frank Act Regulations

for covered transactions, merchants may not be able to use their network 

routing decisions to put downward pressure on such fees. Second, for 

exempt PIN transactions, merchants may be able to exert downward 

pressure on fees when issuers use two or more PIN networks to process 

their transactions.32 In this case, merchants can choose the network with 

the lowest fees and possibly induce the other networks to lower their fees. 

However, exempt issuers may be able to counter such pressure by 

dropping a network whose fees are too low or allowing only the PIN 

network (along with an unaffiliated signature network) with the highest 

fees to process their transactions. As discussed, merchants may be able 

to provide incentives to customers using cards issued by exempt banks to 

conduct a PIN rather than a signature transaction, so as to allow 

themselves more routing options.33 

In response to Regulation II, VISA is undertaking strategies intended to 

attract merchant routing. First, VISA recently imposed a new monthly 

fixed acquirer fee that merchants must pay to accept VISA debit and 

credit cards. VISA also plans to reduce merchants’ variable fees so that 

merchants’ total fees associated with VISA transactions likely would be 

lower after the new fee structure’s implementation.34 Under its new fee 

structure, VISA could, for example, lower the interchange fees for VISA’s 

PIN network, Interlink, to attract merchant routing and make up at least 

some of its lost revenue by collecting the fixed fees.35

 

32An issuer bank could choose to allow one signature and one unaffiliated PIN network on 

its cards and still be in compliance with Regulation II. In this case, Regulation II provides 

only one choice for routing once the customer decides to conduct a PIN or a signature 

transaction.

However, the 

33As mentioned earlier, the recent antitrust settlement between the Department of Justice 

and VISA and MasterCard requires the card networks to allow merchants accepting cards 

by those networks to offer a discount to customers to completing their debit transactions 

using their PIN rather than signature. 

34VISA representatives have explained publicly that this new fee structure is a strategic 

response to Regulation II. They said that VISA’s PIN network, Interlink, lost significant 

transaction volume due to Regulation II, and the new fee structure is one of the company’s 

strategies to regain some of the lost market share. VISA representatives stated that on 

March 13, 2012, the Department of Justice Antitrust Division issued a civil investigative 

demand requesting additional information about the company’s debit strategies, including 

this fixed acquirer fee. 

35According to experts, merchants likely will pay the new fixed fee since most will not want 

to refuse customer payments made with VISA cards. 

Impact on Networks
Appendix V: Impact Analysis of the Debit Card 

Interchange Fees and Routing Rule

Page 110 GAO-13-101 Dodd-Frank Act Regulations

extent to which VISA will be able to lower PIN debit interchange fees and 

gain transaction volume is limited. As with any network, if Interlink 

reduces its interchange fees too much, issuers could replace Interlink with 

another PIN network that offers higher fees. 

Second, according to VISA representatives, VISA’s signature network 

also is able to process PIN transactions, in essence automatically offering 

an additional PIN routing choice to merchants for cards that carry VISA 

signature.36

 

36Representatives from VISA said this move was a strategic response to their loss of 

market share associated with Regulation II. VISA representatives stated that on March 13, 

2012, the Department of Justice Antitrust Division issued a civil investigative demand 

requesting additional information about the company’s debit strategies, including 

information about the VISA signature debit network’s ability to authenticate PIN 

transactions.

For example, in the past, a debit card that carried the VISA 

signature and two other PIN networks usually would process a PIN 

transaction through one of the PIN networks. Now, the VISA check card 

signature network can continue to be the only option for routing signature 

debit transactions on that card but also become a third option for routing 

PIN debit transactions. For VISA to gain PIN transaction volume through 

VISA check cards, however, it must set the associated interchange fees 

at or below the fees set by the other available PIN networks. However, 

the extent to which VISA can do this is not yet clear. If issuers 

experienced declining interchange fee revenue from their use of VISA, 

they could switch signature networks, for example, to MasterCard.
Appendix VI: Econometric Analysis of the 

Impact the Debit Interchange Fee Standard on 

Issuer Banks’ Income

Page 111 GAO-13-101 Dodd-Frank Act Regulations

We conducted an econometric analysis to assess the impact of the DoddFrank Act’s debit interchange fee standard on covered banks.1

Our regression specification is the following:

Our 

multivariate econometric model used a difference-in-difference design 

that exploits the fact that some banks are automatically covered by the 

debit interchange fee requirements but others are not, so we can view 

covered banks as the treatment group and exempt banks as the control 

group. We then compared changes in various types of income earned by 

covered banks over time to changes in those types of income earned by 

exempt banks over time. All else being equal, the difference in the 

differences is the impact of the new debit interchange fee requirements.

ybq = αb + βq + γqCOVEREDbq + X’bqΘ + εbq, 

where b denotes the bank, q denotes the quarter, ybq is the dependent 

variable, αb is an institution-specific intercept, βq is a quarter-specific 

intercept, COVEREDbq is an indicator variable that equals 1 if bank b is 

covered by the debit interchange standard in quarter q and 0 otherwise, 

Xbq is a list of other independent variables, and εbq is an error term. We 

estimate the parameters of the model using quarterly data for banks for 

the period from the first quarter of 2008 to the second quarter of 2012.

The parameters of interest are the γq, the coefficients on the covered 

bank indicators in the quarters after the treatment start date of the fourth 

quarter of 2011. The debit interchange standard was effective October 1, 

2011, (the fourth quarter of 2011), so the covered bank indicator is equal 

to zero for all banks for all quarters from the first quarter of 2008 to the 

third quarter of 2011. For all quarters from the fourth quarter of 2011 to 

the second quarter of 2012, the covered bank indicator is equal to one for 

all covered banks and equal to zero for all exempt banks. Thus, for 

quarters from the fourth of 2011 to the second of 2012, all else being 

equal, the parameter γq measures the average difference in the 

dependent variable between covered and exempt banks in that quarter 

relative to the base quarter.

 

1

The interchange fee standard provides that a covered issuer bank may not receive or 

charge an interchange transaction fee in excess of the sum of a 21-cent base component 

and 5 basis points of the transaction’s value. 76 Fed. Reg. 43,394.

Appendix VI: Econometric Analysis of the 

Impact the Debit Interchange Fee Standard 

on Issuer Banks’ Income

Methodology 
Appendix VI: Econometric Analysis of the 

Impact the Debit Interchange Fee Standard on 

Issuer Banks’ Income

Page 112 GAO-13-101 Dodd-Frank Act Regulations

We used lists of covered institutions provided by the Federal Reserve to 

identify which banks in our sample are required to comply with debit card 

interchange fee standards in each quarter and which are not. We 

assumed that any institution not explicitly identified as a covered 

institution was exempt.

We used different dependent variables (ybq) in order to estimate the 

impacts of the debit interchange standard on various sources of income 

earned by covered banks, including

• bank card and credit card interchange fees, 

• service charges on deposit accounts in domestic offices,

• total non-interest income,

• total interest income, and

• total income.

Finally, we included size as an independent variable (Xbq) to control for 

factors correlated with size that may differentially affect exempt and 

covered banks in the quarters since debit interchange standard went into 

effect. We measured the size of a bank as the natural logarithm of its 

total assets. We included this variable to reduce the likelihood that our 

estimates of the impact of the debit interchange standard are reflecting

something else.

To assess the impact of debit interchange fee regulation on covered 

institutions, we analyzed commercial banks and savings banks (banks) 

for the period from the first quarter of 2008 to the second quarter of 2012 

using data from the Federal Reserve, the Federal Deposit Insurance 

Corporation (FDIC), and the Federal Financial Institutions Examination 

Council (FFIEC). We excluded savings associations and credit unions 

from our analysis, even though they are subject to the debit card 

interchange fee standards. For much of the period we analyzed, savings 

associations filed quarterly Thrift Financial Reports, but these filings did 

not include the information we required for our analysis, such as income 

earned from bank card and credit card interchange fees, for every 

quarter. Similarly, credit union filings also do not include the information 

we required for our analysis.

Table 14 shows the estimated differences in fees and income as a 

percent of assets for covered banks relative to what they would have 

Data

Results 
Appendix VI: Econometric Analysis of the 

Impact the Debit Interchange Fee Standard on 

Issuer Banks’ Income

Page 113 GAO-13-101 Dodd-Frank Act Regulations

earned in the absence of the debit interchange fee standard, all else 

being equal.

Table 14: Estimated Impact of the Debit Interchange Fee Standard on Covered Banks, from Fourth Quarter of 2011 through 

Second Quarter of 2012 (percentage points)

Covered in:

Bank card and 

credit card 

interchange fees 

(% of assets)

Service charges on 

deposit accounts 

in domestic offices 

(% of assets)

Non-interest 

income

(% of assets)

Interest income 

(% of assets)

Total income 

(% of assets)

2011 Q4 -0.007** 0.004** -0.094 0.027** -0.074

(0.001) (0.001) (0.085) (0.014) (0.086)

2012 Q1 -0.007** 0.007** -0.125 0.026** -0.101

(0.001) (0.001) (0.073) (0.013) (0.074)

2012 Q2 -0.008** 0.007** 0.029 0.022 0.049

(0.001) (0.002) (0.089) (0.014) (0.090)

Observations 128,059 128,059 128,059 128,059 128,059

Within R-squared 0.054 0.196 0.003 0.608 0.171

Number of banks 7,815 7,815 7,815 7,815 7,815

All impacts jointly 

significant? Yes Yes No No No

Source: GAO analysis of data from FDIC, FFIEC, and the Federal Reserve. 

Note: Estimated impacts are of the debit fee standard on (1) bank card and credit card interchange 

fees, (2) service charges on deposit accounts in domestic offices, (3) noninterest income, (4) interest 

income, and (5) total income, as a percent of assets, for covered banks after the effective date of the 

debit interchange regulation. Robust standard errors are in parentheses. We obtained the estimates 

using regressions of bank card and credit card interchange fees, service charges on deposit accounts 

in domestic offices, noninterest income, interest income, and total income, as a percent of assets, on 

the natural logarithm of assets, indicators for each bank, indicators for each quarter, and indicators for 

covered banks in each quarter after the effective date of the debit interchange regulation. We used 

F-tests to determine whether the indicators for covered banks in each quarter are jointly significant. 

We used t-tests to determine whether the indicators for covered banks in each quarter are individually 

significant. We used the 5 percent level as our criteria for statistical significance. **=statistically 

significant at the 5 percent level.

Our estimates suggest that the debit interchange fee standard is 

associated with: 

• Lower bank card and credit card interchange fees collected by 

covered banks. After the effective date, interchange fees collected by 

covered banks, as a percent of assets, were about 0.007-0.008 

percentage points lower than they otherwise would have been. For a 

bank with assets of $50 billion, this amounts to $3.5 million-4 million in 

reduced bank card and credit card interchange fees. 
Appendix VI: Econometric Analysis of the 

Impact the Debit Interchange Fee Standard on 

Issuer Banks’ Income

Page 114 GAO-13-101 Dodd-Frank Act Regulations

• Higher service charges on deposit accounts in domestic offices for 

covered banks. After the effective date, service charges collected by 

covered banks, as a percent of assets, were about 0.004-0.007 

percentage points higher than they otherwise would have been. For a 

bank with assets of $50 billion, this amounts to $2 million-3.5 million in 

additional service charges.

• No significant change in overall non-interest income for covered 

banks. Non-interest income—of which both interchange fees and 

service charges are components—earned by covered banks was 

about 0.09-0.13 percentage points lower as a percent of assets than it 

would have been in the first two quarters after the effective date and 

about 0.03 percentage points higher in the third quarter after the 

effective date. However, these estimates are not statistically 

significant at the 5-percent level.

• Increased interest income in the first two quarters after the effective 

date but no significant increase since. Interest income earned by 

covered banks, as a percent of assets, was about 0.03 percentage 

points higher than it would have been in the first two quarters after the 

effective date. It was 0.02 percentage points higher in the third quarter 

after the effective date, but this estimate is not statistically significant 

at the 5-percent level.

• No significant change in total income. Total income—which is 

composed of interest and non-interest income—earned by covered 

banks after the effective date, as a percent of assets, ranges from 

0.10 percentage points lower to 0.05 percentage points higher, but 

these estimates are not statistically significant at the 5-percent level.

To assess the robustness of our estimates, we examined different 

treatment start dates. Specifically, we allowed the debit fee standard to 

have an impact starting in the fourth quarter of 2010—1 year prior to the 

rule’s effective date—on banks that were covered in the fourth quarter of 

2011. We did so to allow for the possibility that institutions began to react 

to the debit fee standard in anticipation of the rule being passed. Our 

estimates suggest that changes in covered banks’ interchange fee 

income and service charge income generally did not occur until after the 

effective date and also that significant changes in non-interest income, 

interest income, and total income for covered banks generally did not 

precede the rule’s effective date.

Our approach allows us to partially differentiate changes in various types 

of income earned by covered banks associated with the debit interchange 

fee cap from changes due to other factors. However, several factors 

make isolating and measuring the impact of the cap for covered banks 
Appendix VI: Econometric Analysis of the 

Impact the Debit Interchange Fee Standard on 

Issuer Banks’ Income

Page 115 GAO-13-101 Dodd-Frank Act Regulations

challenging. In particular, the effects of the cap cannot be differentiated 

from simultaneous changes in economic conditions, regulations, or other 

changes that may differentially affect covered banks. Nevertheless, our 

estimates are suggestive of the initial effects of the cap on covered banks 

and provide a baseline against which to compare future trends.
Appendix VII: Comments from the Securities 

and Exchange Commission

Page 116 GAO-13-101 Dodd-Frank Act Regulations

Appendix VII: Comments from the Securities 

and Exchange Commission 
Appendix VII: Comments from the Securities 

and Exchange Commission

Page 117 GAO-13-101 Dodd-Frank Act Regulations
Appendix VIII: Comments from the Department 

of the Treasury

Page 118 GAO-13-101 Dodd-Frank Act Regulations

Appendix VIII: Comments from the 

Department of the Treasury 
Appendix IX: GAO Contact and Staff 

Acknowledgments

Page 119 GAO-13-101 Dodd-Frank Act Regulations

A. Nicole Clowers, (202) 512-8678, clowersa@gao.gov

In addition to the contact named above, Richard Tsuhara (Assistant 

Director), Silvia Arbelaez-Ellis, Bethany Benitez, William R. Chatlos, 

Philip Curtin, Rachel DeMarcus, Timothy Guinane, Courtney LaFountain, 

Thomas McCool, Marc Molino, Patricia Moye, Susan Offutt, Robert 

Pollard, Christopher Ross, Jessica Sandler, and Joseph Weston, made 

key contributions to this report.

Appendix IX: GAO Contact and Staff 

Acknowledgments 

GAO Contact

Staff 

Acknowledgments 

(250648)
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