FINANCIAL 

REGULATORY 

REFORM

Regulators Have 

Faced Challenges 

Finalizing Key 

Reforms and 

Unaddressed Areas 

Pose Potential Risks

Report to Congressional Addressees

January 2013

GAO-13-195

United States Government Accountability Office

GAO
United States Government Accountability Office

Highlights of GAO-13-195, a report to 

congressional addressees 

January 2013

FINANCIAL REGULATORY REFORM 

Regulators Have Faced Challenges Finalizing Key 

Reforms and Unaddressed Areas Pose Potential 

Risks 

What GAO Found

Implementation of financial regulatory reform is ongoing. Although regulators 

have made progress in implementing some key reforms required by the DoddFrank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank 

Act), others remain incomplete. Moreover, the effectiveness of some 

implemented reforms, as illustrated below, remains to be seen. 

• The Financial Stability Oversight Council (FSOC) was established to, among 

other things, identify systemic threats, and it has taken steps to carry out its

responsibilities. However, GAO recently made a number of 

recommendations to enhance the accountability and transparency of FSOC’s 

decisions and activities and improve collaboration among its members. 

• Regulators have taken actions to implement some key reforms intended to 

reduce systemic risk. For example, FSOC developed—and is currently 

implementing—a process and criteria to determine whether certain nonbank 

financial institutions should be designated for supervision. But, to date, no 

such designations have been made. Although not directly required by the act, 

regulators have also proposed rules implementing international standards to 

enhance capital requirements for banks. These also are not yet final and 

their protections are proposed to phase in over the next 10 years. 

• Key aspects of new liquidation authorities and other reforms for resolving 

troubled financial firms have been implemented, with certain institutions 

having submitted required resolution plans—“living wills”— that would guide 

their rapid and orderly resolution in a bankruptcy, if needed. However, 

market observers noted the effectiveness of these provisions would not be 

known until the first large failure. 

Overall, GAO identified 236 provisions of the act that require regulators to issue 

rulemakings across nine key areas. As of December 2012, regulators had 

issued final rules for about 48 percent of these provisions; however, in some

cases the dates by which affected entities had to comply with the rules had yet to 

be reached. Of the remaining provisions, regulators had proposed rules for 

about 29 percent, and rulemakings had not occurred for about 23 percent. 

A variety of challenges affected regulators’ progress in implementing the act’s 

reforms. Regulators noted that completing rules has taken time because of the 

number and complexity of the issues, and because many rules are 

interconnected. For example, to implement the act’s ban on proprietary trading—

trading activities conducted by financial institutions for their own accounts as 

opposed to those of their clients—the regulators issued draft rules that contained 

over 750 questions for the public’s input and spurred over 19,000 comment 

letters. Further, regulators said that implementing the act’s reforms requires a 

great deal of coordination at the domestic and international levels. Although 

regulators have established mechanisms to facilitate coordination and believe 

coordination efforts have improved the quality of the rulemakings, several 

regulators indicated that coordination increased the amount of time needed to 

finalize rulemakings. Finally, regulators noted that they have prioritized 

developing responsive, appropriate rules over meeting tight statutory deadlines. 

As a result, some important rules may take the longest to develop.

View GAO-13-195. For more information, 

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

or clowersa@gao.gov. 

Why GAO Did This Study

The 2007-2009 financial crisis resulted 

in unprecedented government actions 

to respond to the unfolding turmoil in 

the markets, including providing capital

to many financial institutions and 

government conservatorship for others. 

Although many factors likely 

contributed to the crisis, gaps and 

weaknesses in the supervision and 

regulation of the U.S. financial system 

generally played an important role. In 

recognition of the need to improve the 

regulation of financial markets and 

institutions to minimize the potential for 

future crises, in 2009 GAO designated 

reform of the U.S. financial regulatory 

system as one of the high-risk issues 

facing the federal government. In July 

2010, the Dodd-Frank Act directed 

regulators to implement reforms across 

a range of areas. To assess these 

efforts, GAO examined the (1) overall 

status of U.S. financial regulatory 

reforms arising from the act, (2) 

challenges affecting the 

implementation of the act, and (3) 

areas that pose continued risk.

GAO analyzed data from private and 

regulatory sources on the status of 

required rulemakings, synthesized 

GAO’s body of work on Dodd-Frank 

Act reforms, and interviewed financial 

regulators and industry and consumer 

groups on the status of and challenges 

to implementing reforms. 

What GAO Recommends

GAO is not making any new

recommendations in this report, but 

has previously made over 25

recommendations to the federal 

financial regulators related to DoddFrank reforms implementation. 
Highlights of GAO-13-195 (Continued) 

United States Government Accountability Office

Although the act addressed a number of weaknesses of 

the regulatory system that were exposed by the recent 

financial crisis, some risks remain and others have 

emerged. In 2009, GAO established a framework for 

evaluating financial regulatory reform proposals; it outlines 

nine characteristics that should be reflected in any new 

regulatory system (see table). This framework provides a 

useful lens through which to consider how weaknesses 

were addressed through the act and where additional work 

remains. For example, the creation of the Consumer 

Financial Protection Bureau could help to ensure broader 

and more consistent oversight of firms and issues affecting 

consumers. Additionally, the creation of FSOC could help 

to provide a systemwide view and identify potential threats 

before they create a disruption. In contrast: 

• The efficiency of the regulatory system was not 

materially changed as a large, fragmented regulatory 

structure with numerous regulators remains. This 

requires regulators to coordinate actions and try to 

reconcile or balance differing approaches to ensure 

that regulated entities are subject to appropriate 

scrutiny. 

• GAO and others have raised concerns about the failed 

housing government-sponsored enterprises—Fannie 

Mae and Freddie Mac—that have operated under

federal conservatorships since 2008, and as of 

December 2012 have received $187 billion in federal 

assistance. Until their status is resolved, these entities 

continue to represent financial exposures for the 

federal government, a risk to taxpayers, and an 

impediment to the transition to a housing market that 

functions effectively without the current level of 

substantial federal support. 

• Although the act took steps to increase the regulatory 

system’s focus on systemic threats, regulators have 

expressed concerns that the current structure of 

money market mutual funds may represent an 

unresolved risk. These funds provide short-term 

funding to many financial institutions but lack capital 

buffers and other protections that could reduce the 

likelihood of destabilizing runs on their holdings. 

However, some have questioned the need for 

additional recent reforms affecting these funds. 

• Certain credit risk concentrations also pose potential 

systemic implications, such as the failure of one of the 

two institutions that provide credit to facilitate 

transactions in the tri-party repurchase (repo) market 

that provides short-term funding to many institutions. 

While these concentrations of credit risks create 

potential threats to stability, some observers caution 

that threats also can emerge from other sources, such 

as from risky products or large numbers of failures 

among smaller institutions. 

Although various proposals for action to address these 

risks have been put forward, definitive actions have yet to 

be taken to implement them. 

GAO 2009 Framework for Evaluating Financial Regulatory Reforms 

Characteristic Description 

Clearly defined regulatory goals Goals should be clearly articulated and relevant. 

Appropriately comprehensive Financial regulations should cover all activities that pose risks or are otherwise important to meeting regulatory 

goals. 

Systemwide focus Mechanisms should be included for identifying, monitoring, and managing risks to the financial system 

regardless of the source of the risk. 

Flexible and adaptable A regulatory system that is flexible and forward looking allows regulators to readily adapt to market innovations 

and changes. 

Efficient and effective Effective and efficient oversight should be developed, including eliminating overlapping federal regulatory 

missions where appropriate, and minimizing regulatory burden without sacrificing effective oversight. 

Consistent consumer and investor 

protection 

Consumers and investors should receive consistent, useful information, as well as legal protections for similar 

financial products and services. 

Regulators provided with 

independence, prominence, 

authority, and accountability 

Regulators should have independence from inappropriate influence, as well as prominence and authority to carry 

out and enforce statutory missions, and be clearly accountable for meeting regulatory goals. 

Consistent financial oversight Similar institutions, products, risks, and services should be subject to consistent regulation, oversight, and 

transparency. 

Minimal taxpayer exposure A regulatory system should foster financial markets that are resilient enough to absorb failures and thereby limit 

the need for federal intervention and limit taxpayers’ exposure to financial risk. 

Source: GAO.
Page i GAO-13-195 Financial Regulatory Reform Status

Letter 1 

Background 3

Regulators Have Made Progress in Implementing Dodd-Frank Act 

Reforms, but Many Efforts Are Ongoing 5

Regulators Have Faced Various Challenges Implementing Reforms 23

Various Areas Continue to Pose Risks, and Regulatory Actions to 

Mitigate These Risks Have Not Been Finalized or Implemented 30

Agency Comments and Our Evaluation 40

Appendix I Objectives, Scope, and Methodology 41

Appendix II Comments from the Securities and Exchange Commission 44

Appendix III GAO Contact and Staff Acknowledgments 45

Related GAO Products 46

Tables

Table 1: Prudential Regulators and Their Basic Functions, 2012 4

Table 2: GAO’s 2009 Framework for Evaluating Financial 

Regulatory Reform 31

Figure

Figure 1: Status of Regulators’ Efforts to Implement Dodd-Frank 

Provisions, as of December 2012 6

Contents 
Page ii GAO-13-195 Financial Regulatory Reform Status

Abbreviations

ABCP asset-backed commercial paper

CFPB Consumer Financial Protection Bureau

CFTC Commodity Futures Trading Commission

Dodd-Frank Act Dodd-Frank Wall Street Reform and Consumer 

Protection Act of 2010

FDIC Federal Deposit Insurance Corporation

Federal Reserve Board of Governors of the Federal Reserve System

FHA Federal Housing Administration

FHFA Federal Housing Finance Agency

FSB Financial Stability Board

FSOC Financial Stability Oversight Council

HUD Department of Housing and Urban Development

LEI legal entity identifier

MBS mortgage-backed securities

MMFs money market fund

OCC Office of the Comptroller of the Currency

OFR Office of Financial Research 

OLA Orderly Liquidation Authority

OTC over-the-counter

SEC Securities and Exchange Commission

SIFI systemically important financial institution

SRO self-regulatory organization

Treasury Department of the Treasury

This is a work of the U.S. government and is not subject to copyright protection in the 

United States. The published product may be reproduced and distributed in its entirety 

without further permission from GAO. However, because this work may contain 

copyrighted images or other material, permission from the copyright holder may be 

necessary if you wish to reproduce this material separately.
Page 1 GAO-13-195 Financial Regulatory Reform Status

United States Government Accountability Office 

Washington, DC 20548

January 23, 2013

The Honorable Debbie Stabenow

Chairwoman

Committee on Agriculture, Nutrition and Forestry

United States Senate

The Honorable Tim Johnson

Chairman

Committee on Banking, Housing, and Urban Affairs

United States Senate

The 2007-2009 financial crisis threatened the stability of the U.S. financial 

system and the health of the U.S. economy. Many households suffered 

as a result of falling asset prices, tightening credit, and increasing 

unemployment. In response to the crisis, the federal government took 

unprecedented steps—providing hundreds of billions of dollars of capital 

and over a trillion dollars of emergency assistance to financial 

institutions—to stem the unraveling of the financial services sector and 

restore order to the credit markets. Although many factors likely 

contributed to the crisis and the relative role of these factors is subject to 

debate, gaps and weaknesses in the supervision and regulation of the 

U.S. financial system generally played an important role. In 2009, we 

designated reforming the financial regulatory system as a high-risk area 

and also identified characteristics that should be reflected in any new 

regulatory system.1

In 2010, Congress enacted the Dodd-Frank Wall Street Reform and 

Consumer Protection Act (Dodd-Frank Act), which includes numerous 

reforms to strengthen oversight of the financial services sector.2

 

1

See GAO, High-Risk Series: An Update, 

Although 

the financial services industry, academics, and others generally have 

supported the Dodd-Frank Act’s goal of enhancing the stability of the U.S. 

financial system, the act’s implementation has not been free of 

GAO-09-271 (Washington, D.C.: January 2009) 

and Financial Regulation: A Framework for Crafting and Assessing Proposals to 

Modernize the Outdated U.S. Financial Regulatory System, GAO-09-216 (Washington, 

D.C.: Jan. 8, 2009).

2

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

 
 

Page 2 GAO-13-195 Financial Regulatory Reform Status

controversy or debate. For example, no consensus exists on the extent to 

which the act will help to reduce the likelihood and severity of future 

financial crises. In addition, some market observers have raised concerns 

about the pace of reform, with some suggesting that reform is occurring 

too slowly and others arguing that it is moving too quickly.

We prepared this report under the authority of the Comptroller General to 

conduct work on GAO’s initiative to assist Congress with its oversight 

responsibilities. Specifically, this report examines the (1) overall status of 

U.S. financial regulatory reforms arising from the act, (2) challenges 

affecting the implementation of these reforms, and (3) areas that pose 

continued risk. To address our objectives, we synthesized GAO’s body of 

work on Dodd-Frank Act reforms and other financial regulatory reform 

efforts and challenges.3

 

3

See Related GAO Products at the end of this report.

We also reviewed and analyzed government, 

academic, and other studies on Dodd-Frank Act reforms and 

implementation. To examine regulators’ efforts to implement the 

provisions of the Dodd-Frank Act, we focused on eight major reform 

areas: capital requirements; resolution of financial institutions; proprietary 

trading; derivatives; consumer protection; mortgage reforms; expanded 

regulation of institutions and products; and investor protection. We also 

obtained and analyzed information from a database maintained by the 

law firm Davis Polk and Wardwell that identified provisions of the Dodd 

Frank Act that require and authorize regulators to take actions, and tracks 

the status of regulators’ efforts to implement these provisions. We then 

used various sources and assumptions to compile a list of provisions 

requiring actions by regulators, including discussing provisions with 

agency officials who are responsible for implementation of the majority of 

these efforts. We focused our analysis on provisions that required 

rulemakings and other key actions, but excluded other requirements, 

such as those to publish studies. In addition, we used our professional 

judgment to categorize the information from the law firm and financial 

regulators. Using different sources, assumptions, and judgments in 

compiling the list of provisions requiring rulemakings and other key 

actions could result in different totals, and therefore the information we 

provide should not be taken as a definitive count of all actions required by 

the act.
 

Page 3 GAO-13-195 Financial Regulatory Reform Status

We also interviewed officials from seven federal financial regulators—

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

Bureau of Consumer Financial Protection—also known as the Consumer 

Financial Protection Bureau (CFPB), Commodity Futures Trading 

Commission (CFTC), Federal Deposit Insurance Corporation (FDIC), 

Federal Housing Finance Agency (FHFA), Office of the Comptroller of the 

Currency (OCC), and Securities and Exchange Commission (SEC), as 

well as staff from the Financial Stability Oversight Council (FSOC) about 

their implementation of various Dodd-Frank reforms, challenges they are 

facing, and areas that continue to pose risk.4

We conducted this performance audit from June 2012 to January 2013 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.

In addition, we interviewed 

industry and consumer groups about these issues and obtained the views 

of market observers and experts who have written about various DoddFrank Act reforms. Appendix I contains additional information on our 

scope and methodology.

The financial regulatory framework in the United States was built over the 

last 150 years, largely in response to crises and significant market 

developments. As a result, the regulatory system is complex and 

fragmented. For some time, we have reported that the U.S. financial 

regulatory system has not kept pace with major developments in financial 

markets and products in recent decades.5

 

4

For the purposes of this report, the term financial regulators includes the federal financial 

regulators (the Federal Reserve, OCC, CFTC, SEC, CFPB, FDIC, and FHFA) as well as 

the Department of the Treasury and FSOC.

Although the Dodd-Frank Act 

5

See for example, GAO-09-216; Financial Regulation: Modernization of the Financial 

Services Regulatory System, GAO/T-GGD-95-121 (Washington, D.C.: Mar. 15, 1995); 

Long-Term Capital Management: Regulators Need to Focus Greater Attention on 

Systemic Risk, GAO/GGD-00-3 (Washington, D.C.: Oct. 29, 1999); and Financial 

Regulation: Industry Changes Prompt Need to Reconsider U.S. Regulatory Structure, 

GAO-05-61 (Washington, D.C.: Oct. 6, 2004). 

Background
 

Page 4 GAO-13-195 Financial Regulatory Reform Status

has brought additional changes, the U.S. financial regulatory structure 

largely remains the same.

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

federal and state regulators as well as self-regulatory organizations 

(SRO). In the banking industry, the specific regulatory configuration 

depends on the type of charter the depository institution chooses. Charter 

types for depository institutions include commercial banks, savings 

associations, and credit unions. These charters may be obtained at the 

state or federal level. The prudential 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, 2012

Agency Basic function

Office of the Comptroller 

of the Currency 

Charters and supervises national banks and federal savings 

associations.

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 for enhanced supervision 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 associations; 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 certain 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

Charters and supervises federally chartered credit unions and 

insures savings in federally and most state-chartered credit 

unions.

Source: OCC, Federal Reserve, FDIC, and National Credit Union Administration.

In addition, as will be discussed, the Dodd-Frank Act created CFPB as an 

independent bureau in the Federal Reserve System that is responsible for 

regulating the offering and provision of consumer financial products and 

services under federal consumer financial laws. Under the Dodd-Frank 

Act, certain authority vested in the prudential regulators and other 

regulators was transferred to CFPB on July 21, 2011.
 

Page 5 GAO-13-195 Financial Regulatory Reform Status

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’s 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, and SEC has comparable authority for markets in securitybased swaps. CFTC and SEC have responsibility for administering 

federal legislation and developing comprehensive regulations to protect 

the public from fraud and manipulation, insure the financial integrity of 

markets, and help to foster better risk management, among other things. 

Further, state regulators oversee the insurance industry and contribute to 

the oversight of banks and securities as well. 

Certain housing market participants, including the housing finance 

government-sponsored enterprises—Fannie Mae and Freddie Mac (the 

enterprises)—and the Federal Home Loan Bank System, are supervised 

by FHFA. FHFA has authority to take enforcement actions against, 

appoint itself conservator or receiver for, and resolve these enterprises. 

Federal financial regulators are continuing to implement reforms pursuant 

to the Dodd-Frank Act. A key goal of the act was to promote the stability 

of the financial system, and the act puts forward a number of reforms to 

achieve this goal, such as provisions related to identifying and addressing 

systemic risk and enhancing supervision of large, complex financial 

institutions.6

 

6

Systemic risk refers to the possibility that a single event could broadly affect the entire 

financial system, causing widespread losses rather than just losses at one or a few 

institutions.

Other reforms seek to expand protections for consumers and 

investors and expand oversight to entities that were less regulated. The 

implementation of the reforms is largely being driven by the rulemakings 

or other key actions of the various responsible financial regulators, and as 

figure 1 shows, the status of the regulators’ implementation of these 

reforms varies. As of December 2012, regulators had finalized rules for a 

little less than half of the 236 required rulemakings and other key 

Regulators Have 

Made Progress in 

Implementing DoddFrank Act Reforms, 

but Many Efforts Are 

Ongoing
 

Page 6 GAO-13-195 Financial Regulatory Reform Status

rulemakings that we identified. The remaining required rulemakings and 

other key rulemakings have not been finalized or have yet to be 

proposed. Additionally, of the 236 provisions we identified, over two-thirds 

(157) required regulators to take action by a specific date. Among the 

provisions with deadlines that passed as of December 2012 (a total of 

134 provisions), regulators had missed the act’s deadlines for the majority 

(119, or 89 percent) of the provisions.

Figure 1: Status of Regulators’ Efforts to Implement Dodd-Frank Provisions, as of 

December 2012

Notes: We used various sources and assumptions to compile a list of provisions requiring regulators 

to issue rulemakings and other key actions, including using our professional judgment to categorize 

information from a private law firm and financial regulators. Using different sources, assumptions, and 

judgments in compiling the list of provisions could result in different totals, and therefore the 

information we provide should not be taken as a definitive count of all actions required by the act. See 

appendix I for information on our methodology. 

a

This amount includes 96 provisions for which regulators have finalized a rule that is also effective; 4 

provisions for which multiple regulators are required to issue a rule, and at least one regulator has 

finalized a rule that is also effective; and 13 provisions for which regulators have issued a final rule, 

but was not effective as of December 2012. 

The recent crisis highlighted several sources of systemic risk, including 

the potential for one financial firm’s distress to spill over into the broader 

financial system and economy and for systemic risk to be generated and 

propagated outside of the largest financial firms. This was due, in part, to 

interconnections not only among firms but also among markets. To better 

monitor and contain the potential for such events to create systemic risk 

and increase overall system stability, the act mandated various reforms 

including creating FSOC and the Office of Financial Research (OFR); 

establishing heightened prudential requirements for certain nonbank 

financial companies and new capital standards for banks and bank 

holding companies; establishing the Orderly Liquidation Authority (OLA) 

to address failures of certain financial institutions; expanding the 

regulation of the swaps market; and banning banking entities from 

Various Reforms That 

Could Enhance System 

Stability Are Underway but 

Remain Incomplete
 

Page 7 GAO-13-195 Financial Regulatory Reform Status

engaging in certain types of trading and investments. However, the 

implementation of many of these reforms remains ongoing and the 

effectiveness of some remains an open question.

The 2007-2009 financial crisis highlighted the lack of an agency or 

mechanism responsible for monitoring and addressing risks across the 

financial system and a shortage of timely information to facilitate this 

oversight. To address these limitations, the Dodd-Frank Act created 

FSOC to provide, for the first time, an entity charged with monitoring and 

identifying risks to financial stability throughout the entire financial system. 

The act also established OFR to serve FSOC, its member agencies, and 

the public by improving the quality, transparency, and accessibility of 

financial data and information; conducting and sponsoring research 

related to financial stability; and promoting best practices in risk 

management.7

The act tasks FSOC with identifying risks to the financial stability of the 

United States, promoting market discipline by eliminating expectations of 

government shields against losses, and responding to emerging threats 

to the stability of the U.S. financial system. The Dodd-Frank Act provides 

that FSOC consists of 10 voting members and 5 nonvoting members.8

 

7

For additional information on FSOC and OFR, see GAO, Financial Stability: New Council 

and Research Office Should Strengthen the Accountability and Transparency of Their 

Decisions,

The 10 voting members provide a federal regulatory perspective and an 

independent insurance expert’s view. The 5 nonvoting members offer 

different insights, including state-level representatives from banks, 

securities, and insurance regulators and directors of some new offices 

within Treasury—OFR and the Federal Insurance Office—that were 

established by the Dodd-Frank Act. FSOC is chaired by the Secretary of 

the Treasury. The Dodd-Frank Act requires that the council meet at least 

once a quarter; however, FSOC has met more frequently, with FSOC 

reporting that it met 12 times from July 2011 to July 2012. FSOC has 

fulfilled statutory requirements for issuing various studies, including those 

GAO-12-886 (Washington, D.C.: Sept. 11, 2012).

8

The voting members of FSOC include the Secretary of the Treasury and the heads of 

CFPB, CFTC, FDIC, Federal Reserve, FHFA, National Credit Union Administration, OCC, 

SEC, and an independent voting member with insurance expertise. The nonvoting 

members include the director of the Federal Insurance Office, the director of OFR, and a 

state banking supervisor, a state insurance commissioner, and a state securities 

commissioner. 

Creation of FSOC and OFR
 

Page 8 GAO-13-195 Financial Regulatory Reform Status

on regulating proprietary trading, contingent capital, and concentration 

limits on large financial companies.9

OFR—created by the act to support FSOC, its member agencies, 

Congress, and the public by improving financial data and conducting 

research related to financial stability—has taken a number of steps to help 

fulfill its mission.

FSOC has also issued two annual 

reports addressing market and regulatory developments across the 

financial system. In addition, FSOC voluntarily issued rulemakings 

explaining the processes and criteria that it will follow in designating 

financial market utilities—entities that provide critical services to the 

markets such as clearinghouses that process trading information and 

facilitate payments associated with trades—as systemically important and 

nonbank financial companies for supervision by the Federal Reserve.

10 For example, in July 2012 OFR released its first annual 

report, which assessed the state of the U.S. financial system.11

 

9

Although contingent capital can be defined in various ways, it can refer to instruments 

that (1) are not regulatory capital instruments but convert into a regulatory capital 

instrument, (2) are regulatory capital instruments but convert into a more subordinate form 

of regulatory capital (such as common equity capital) that would absorb losses earlier, or 

(3) contractually require the holder of the instrument to purchase a regulatory capital 

instrument of the issuer upon the occurrence of a trigger event. In addition, contingent 

capital is sometimes used to describe a debt instrument subject to the “bail-in” or write-off 

at the point of failure of an institution to provide capital for an orderly resolution of the 

institution without government support.

OFR has 

also begun a process to assemble an inventory of data that FSOC member 

agencies obtain, which OFR staff described as a first step toward 

standardizing data, reducing duplication, and eventually lowering costs for 

industry and regulators. OFR has also collaborated with industry, foreign 

government entities, and international bodies in efforts to create a legal 

entity identifier (LEI), which OFR describes as an emerging global standard 

that will enable regulators and companies around the world to quickly and 

accurately identify parties to financial transactions. Additionally, OFR has 

initiated a working paper series in which OFR researchers often collaborate 

with outside academics. Three papers have been published, including one 

that catalogs systemic risk monitoring systems and another that describes 

ways to improve risk management at financial institutions. Several more 

papers will be published in the coming months.

10The provisions dealing with OFR are contained primarily in subtitle B of title I, §§ 151-

156, codified at 12 U.S.C. §§ 5341-5346.

11Office of Financial Research, 2012 Annual Report (Washington, D.C.: July 20, 2012).
 

Page 9 GAO-13-195 Financial Regulatory Reform Status

Although the creation of FSOC and OFR could assist the U.S. regulatory 

system in identifying systemic threats, they will have to overcome various 

challenges to help ensure that these reforms achieve their intended 

goals. First, FSOC’s key missions—to identify risks to financial stability 

and respond to emerging threats—are inherently challenging. For 

example, key indicators, such as market prices, often do not reflect these 

risks; such threats do not develop in precisely the same way in 

successive crises; financial innovations are not well understood; and 

according to experts, effectively monitoring and mitigating systemic risk is 

a very large and procedurally complex undertaking. Additionally, actions 

to preemptively mitigate threats may appear unnecessary or too costly at 

the time they are proposed or taken. Second, FSOC’s effectiveness 

hinges to a large extent on collaboration among its many members, 

almost all of whom come from federal and state agencies with their own 

specific statutory missions. In testifying before Congress on Dodd-Frank 

rulemakings, the chairperson of FSOC recognized this challenge, noting 

that coordination in the rulemaking process was hard because the act left 

in place a financial system with a complex set of independent agencies 

with overlapping jurisdictions and different responsibilities. Third, OFR 

faces the challenge of trying to build a world-class research organization 

from the ground up while meeting shorter-term goals and responsibilities. 

Those researchers who supported the creation of OFR have suggested 

that it will take many years for the new entity to provide the insights that 

will ultimately be expected of it.

In addition, in a September 2012 report, we concluded that the ability of 

FSOC and OFR to fundamentally change the way the federal government 

monitored threats to financial stability remains to be seen.

12

 

12See 

The 

uncertainty partly stemmed from the newness of the entities, as both were 

continuing to develop needed management structures. But we also noted 

that limits in FSOC’s and OFR’s transparency contributed to questions 

about their effectiveness. We made 10 recommendations to FSOC and 

OFR to strengthen their accountability and transparency. These include 

FSOC and OFR clarifying their monitoring responsibilities to better ensure 

that the monitoring and analysis of the financial system are 

comprehensive and not unnecessarily duplicative, and FSOC 

systematically sharing key financial risk indicators among member 

agencies to assist in identifying potential threats for further monitoring or 

GAO-12-886. 
 

Page 10 GAO-13-195 Financial Regulatory Reform Status

analysis. In responding to the recommendations in this report, Treasury 

emphasized the progress that FSOC and OFR have made since their 

creation, including preparing rules and guidance, promoting transparency 

and accountability by testifying before Congress, providing information to 

oversight bodies, and making information available on websites. Treasury 

also stated that officials would carefully consider the report’s findings and 

recommendations, and would share them with the council for their review 

and consideration.

The recent financial crisis revealed weaknesses in the existing regulatory 

framework for overseeing financial institutions. For example, although 

large, interconnected financial firms were subject to some form of federal 

supervision and regulation, the oversight proved inadequate and 

inconsistent. The crisis also showed that regulators did not require 

financial firms to hold sufficient capital to cover their trading and other 

losses or plan for a scenario in which liquidity was sharply curtailed.

To address these shortcomings, the Dodd-Frank Act requires the Federal 

Reserve to supervise and develop enhanced capital and prudential 

standards for bank holding companies, including foreign banking 

organizations, with $50 billion or more in consolidated assets and 

nonbank financial companies designated by FSOC for supervision by the 

Federal Reserve.13

 

13The 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.

The act also requires the Federal Reserve to establish 

a regulatory framework for the early remediation of financial weaknesses 

for these companies. The act requires the enhanced prudential standards 

to be more stringent than standards applicable to other bank holding 

companies and financial firms that do not present similar risks to U.S. 

New Heightened Prudential 

Requirements and Capital 

Standards
 

Page 11 GAO-13-195 Financial Regulatory Reform Status

financial stability.14

Some key actions to implement these reforms have not been completed. 

The Federal Reserve has issued proposed and final rules implementing 

certain elements of these requirements. In January 2012, the Federal 

Reserve proposed regulations on enhanced prudential standards and 

early remediation requirements for U.S. bank holding companies with 

total consolidated assets of $50 billion or more and U.S. nonbank 

financial companies supervised by the Federal Reserve. These proposed 

regulations included risk-based capital and leverage requirements, 

liquidity requirements, single-counterparty credit limits, overall risk 

management and risk committee requirements, stress test requirements, 

early remediation requirements, and debt-to-equity ratio requirements for 

companies that FSOC has determined pose a grave threat to financial 

stability. In October 2012, the Federal Reserve issued a final rule 

implementing the supervisory and company-run stress test requirements 

included in the December 2011 proposal.

The act further requires the enhanced standards to 

increase in stringency based on the risk characteristics of each firm. In 

general, the Federal Reserve has authority to tailor the application of the 

prudential standards, including differentiating among companies on an 

individual basis or by category.

15

 

14As we previously reported, the act provided that FSOC may determine whether a 

nonbank financial company shall be supervised by the Federal Reserve and subject to 

prudential standards if it determines that material financial distress at the nonbank 

financial company, or the nature, scope, size, scale, concentration, interconnectedness, or 

mix of the activities of the company, could pose a threat to the financial stability of the 

United States. The act lists specific factors for FSOC to consider in making these 

determinations along with any other risk-related factors it deems appropriate. Bank 

holding companies with $50 billion or more in total consolidated assets are also subject to 

the Federal Reserve’s enhanced supervision and prudential standards. See 

In December 2012, the 

Federal Reserve issued proposed regulations that would implement the 

enhanced prudential standards and early remediation requirements 

required to be established by the Dodd-Frank Act for foreign banking 

organizations and foreign nonbank financial companies supervised by the 

Federal Reserve. According to the Federal Reserve, the proposed 

standards for foreign banking organizations are broadly consistent with 

the standards proposed for large U.S. bank holding companies and U.S. 

nonbank financial companies.

GAO-12-886. 

15As required by the act, FDIC and OCC also issued rules in October 2012 mandating 

stress testing by the institutions they supervise with assets of over $10 billion.
 

Page 12 GAO-13-195 Financial Regulatory Reform Status

In addition to the enhanced prudential standards for certain U.S. bank 

holding companies and identified U.S. nonbank financial companies, 

under the act, the regulators are also required to establish minimum 

leverage and risk-based capital requirements, on a consolidated basis, 

that apply to insured depository institutions, bank and thrift holding 

companies, and systemically important nonbank financial companies.16 In 

June 2012, OCC, the Federal Reserve, and FDIC proposed 

comprehensive revisions to their regulatory capital framework through 

three concurrent notices of proposed rulemaking. The proposals would 

revise the agencies’ current capital rules to incorporate changes made by 

the Basel Committee on Banking Supervision—a body that sets 

international standards for bank capital and liquidity—to the Basel capital 

framework consistent with relevant provisions of the Dodd-Frank Act.17

 

16These capital requirements are subject to two floors. Regulators must apply to U.S. 

bank holding companies and other nonbank financial companies designated for 

supervision by the Federal Reserve the same minimum leverage capital and risk-based 

capital requirements that apply to federally insured depository institutions. In addition, the 

minimum capital requirements may not be quantitatively lower than the capital 

requirements that were in effect for insured depository institutions as of the date when the 

act was enacted. The Federal Reserve, FDIC, and OCC also issued Dodd-Frank Actrequired rules establishing a minimum capital floor.

According to the regulators, the reforms contained in the rule would, 

among other things, improve the resilience of the banking sector in times 

of stress. The proposed rules, which were published in August 2012, 

include an extended comment period that ended in October 2012. The 

provisions in U.S. regulators’ implementation of these capital 

requirements are intended to conform to these international standards 

and are proposed to phase in over the next 10 years. The agencies 

received thousands of comment letters from the public, including banking 

organizations of all sizes, trade groups, academics, public interest 

advocates, and private individuals, through the comment period. 

According to testimony before Congress given by the Federal Reserve’s 

banking supervision director, the breadth of the proposed changes has 

raised concerns among many industry participants that a January 2013 

17The Basel Committee has developed international standards for bank capital and 

liquidity for its member economies since the 1980s. The latest international proposal, 

known as Basel III, seeks to improve the quality of regulatory capital and introduces a new 

minimum common equity requirement, among other things. The Federal Reserve intends 

to satisfy some aspects of the Dodd-Frank Act requirements for heightened prudential 

standards for bank SIFIs by implementation of the standards of the Basel Committee on 

Banking Supervision. The Federal Reserve will separately implement consistent capital 

and liquidity standards for nonbank SIFIs. 
 

Page 13 GAO-13-195 Financial Regulatory Reform Status

implementation date for the rules would not provide sufficient time for 

them to understand the rules or make necessary system changes. As a 

result, the banking agencies announced in November 2012 that they did 

not expect to finalize the proposal by January 2013—as expected in the 

Basel Agreement.

During the recent crisis, the federal government took unprecedented 

actions to address the financial difficulties of several large financial firms, 

including making equity investments in some firms or placing others in 

government-administered conservatorships. The Dodd-Frank Act 

provides a new option for resolving failing financial firms whose disorderly 

resolution would have serious adverse effects on U.S. financial stability 

by creating a process under which FDIC has the authority to liquidate 

large financial firms, including nonbanks, outside of the bankruptcy 

process—called the Orderly Liquidation Authority (OLA). Under this 

authority, FDIC may be appointed receiver for a financial firm if the 

Treasury Secretary determines that the firm’s failure threatens U.S. 

financial stability. SIFIs also must formulate and submit to the Federal 

Reserve, FSOC, and FDIC resolution plans (or “living wills”) that detail 

how they could be resolved in the event of material financial distress or 

failure.18

Progress has been made to implement the reforms related to resolving 

large, complex financial companies. For instance, FDIC finalized several 

rules to implement OLA. The Federal Reserve and FDIC finalized and 

made effective rules relating to resolution plans, and the large financial 

institutions that were the first firms required to prepare such plans 

submitted these to regulators as expected in July 2012. However, work 

remains to be completed in other important areas. Rules that either 

remain in proposed form or have not yet been proposed include those 

that establish a program to guarantee obligations of solvent depository 

institutions and their holding companies and affiliates during times of 

 

18As we previously reported this provision requires each nonbank financial company 

supervised by the Federal Reserve and each bank holding company with total 

consolidated assets of $50 billion or more to submit periodically to the Federal Reserve, 

FDIC, and FSOC a plan for the firm’s rapid and orderly resolution in the event of material 

financial distress or failure. Such a firm also must submit a report on the nature and extent 

of credit exposures the company has to significant bank holding companies and significant 

nonbank financial firms and the same types of exposures such firms have to the reporting 

firm. See GAO, Bankruptcy: Complex Financial Institutions and International Coordination 

Pose Challenges,GAO-11-707 (Washington, D.C.: July 19, 2011).

Establishment of Resolution 

Reforms
 

Page 14 GAO-13-195 Financial Regulatory Reform Status

severe economic stress, and implement OLA for broker-dealers. In

addition, regulators have not yet completed their reviews of the large 

bank holding companies’ resolution plans.

Although many market observers expect that these resolution reforms will 

help mitigate threats to the financial system posed by the failure of a SIFI 

or other large, complex, interconnected financial firm, some questions 

about their potential effectiveness have been raised. Some observers 

noted that OLA is new and untested, and its effectiveness in reducing 

risky behavior by institutions will depend on the extent to which market 

participants believe that FDIC will use OLA to make an institution’s 

creditors and shareholders bear losses of any SIFI failure. Furthermore, 

others questioned whether FDIC has sufficient capacity to use OLA to 

handle multiple SIFI failures and thus prevent further systemic disruption. 

Others have raised concerns over whether any FDIC-imposed losses on 

some creditors of a failed firm could threaten the soundness of other 

important financial institutions or how FDIC would handle the non-U.S. 

subsidiaries of a failed firm.

Experts also expressed mixed views on the usefulness of the living wills. 

One market expert expressed doubt that these living wills would prove 

useful for resolving a complex firm’s failure, but was more optimistic that 

the documents could serve to encourage regulators to make such firms 

simplify their organizational structures and become more transparent. 

Experts further noted that resolution plans may provide regulators with 

critical information about a firm’s organizational structure that could aid 

the resolution process or motivate SIFIs to simplify their structures and 

this simplification could help facilitate resolution. However, other experts 

commented that although resolution plans may assist regulators in 

gaining a better understanding of SIFI structures and activities, the plans 

may not be useful guides during an actual liquidation—in part because 

the plans could become outdated or because the plans may not be 

helpful during a crisis. Resolution plans also may provide limited benefits 

in simplifying firm structures, in part because tax, jurisdictional, and other 

considerations may outweigh the benefits of simplification.

FSOC has found that over-the-counter (OTC) derivatives, particularly 

credit default swaps, generally were a factor in the propagation of risks 

during the recent crisis because of their complexity and opacity, which 

contributed to excessive risk taking, a lack of clarity about the ultimate 

Regulation of the Swaps 

Market 
 

Page 15 GAO-13-195 Financial Regulatory Reform Status

distribution of risks, and a loss in market confidence.19 Although some 

standardized swaps, such as certain interest rate swaps, have been 

cleared through clearinghouses—which stand between counterparties in 

assuming the risk of counterparty default—credit default swaps and most 

other swaps traditionally have been traded in the OTC market where 

holders of derivatives contracts bear the risk of counterparty default.20

Title VII of the Dodd-Frank Act establishes a new regulatory framework 

for swaps to reduce risk, increase transparency, and promote market 

integrity in swaps markets by, among other things, moving trading to 

exchanges (or similar trading platforms), requiring that many trades are to 

be centrally cleared, and providing for greater public dissemination of 

trading information. To implement the act’s reforms, SEC is responsible 

for any security-based swaps, SEC and CFTC are jointly responsible for 

mixed swaps, and CFTC is responsible for all other types of swaps.21

Progress has been made in implementing derivatives reforms. CFTC 

officials noted that swap reform has involved multiple rulemakings 

including rules, such as defining swaps, registering dealers and reporting 

to CFTC on the size of positions in swaps held by such dealers. The 

swaps definition rules are in place and effective, and dealer registration is 

ongoing. As of April 2012, rules requiring dealers to publicly report their 

 

19See Financial Stability Oversight Council, Financial Stability Oversight Council 2011 

Annual Report (Washington, D.C.: July 2011). OTC credit derivatives are privately 

negotiated contracts that allow a party to transfer the risk of default on a bond or loan to 

another party without transferring ownership. For example, in a credit default swap a bond 

investor agrees to pay a periodic premium to a financial firm in exchange for the firm’s 

agreement to compensate the bond investor for any losses if the bond issuer defaults on 

the bonds.

20A derivatives clearinghouse or similar organization enables each party to a derivatives 

transaction to substitute the credit of the clearinghouse for the credit of the parties, 

provides for the settlement or netting of obligations from the transaction, or otherwise 

provides services mutualizing or transferring the credit risk from the transaction. Dealers 

participate in the derivatives market by quoting prices to, buying derivatives from, and 

selling derivatives to end users and other dealers. 

21Under the Dodd-Frank Act, SEC has regulatory authority over “security-based swaps,” 

which are defined as swaps based on a single security or loan or a narrow-based group or 

index of securities (including any interest therein or the value thereof), or events relating to 

a single issuer or issuers of securities in a narrow-based security index. Security-based 

swaps are included in the definition of “security” under the Securities Exchange Act of 

1934 and the Securities Act of 1933. CFTC has primary regulatory authority over all other 

swaps, such as energy and agricultural swaps. CFTC and SEC share authority over 

“mixed swaps,” which are security-based swaps that have a commodity component. 
 

Page 16 GAO-13-195 Financial Regulatory Reform Status

swaps positions to CFTC were final, and in December 2012 the CFTC 

Chairman testified that CFTC had finalized approximately 80 percent of 

Dodd-Frank swaps rules. However, the rules that will specify how much 

margin—funds posted with a clearinghouse that can serve to absorb 

losses as the value of the swaps position changes—and how much 

capital a swaps dealer must hold to absorb losses on its swaps remain 

incomplete.

Because swaps are globally traded, the regulatory developments in 

overseas markets also have affected implementation of the swaps 

reforms. Although many other jurisdictions have been developing new 

regulatory regimes, the United States has been one of the first 

jurisdictions to have enacted legislation in this area. The Financial 

Stability Board (FSB)—which is an organization of representatives of 

national authorities responsible for financial stability that has been 

established to coordinate and promote the implementation of effective 

regulatory, supervisory, and other financial sector policies—reported to 

the Group of Twenty leaders in October 2012 that regulatory uncertainty 

remains the largest impediment to timely implementation of swaps 

regulatory reforms across countries.22

The role that proprietary trading—trading activities conducted by banking 

entities for their own accounts as opposed to those of their clients—

played in the recent crisis is a matter of debate. Some experts have 

stated that the ability of banking entities to use federally insured deposits 

to seek profits for their own accounts provides incentives for them to take 

on excessive risks. In particular, academics have noted that commercial 

banks benefit from government-insured deposits that subsidize their 

FSB urged continued discussions 

to identify and address any conflicts in rules affecting cross-border 

activities. According to SEC staff, SEC and CFTC have been active 

participants in these ongoing discussions. In some cases, international 

bodies have requested the delay of some derivatives-related regulations 

because of the importance of coordination. For example, CFTC officials 

noted that one of the reasons their Commission voted to reopen the 

comment period for the swaps capital and margin requirement rule was to 

allow European regulators to complete similar rules, potentially by early 

2013.

 

22The Group of Twenty is a forum for international cooperation on the important issues of 

the global economic and financial agenda and consists of the finance ministers and 

central bank governors from 19 countries and the European Union. 

Restrictions on Proprietary 

Trading
 

Page 17 GAO-13-195 Financial Regulatory Reform Status

funding and thus do not bear the full risks of their proprietary activities.23

We previously reported that proprietary trading provided revenues but 

also produced large losses for some financial institutions during the 

recent crisis.24

To address potential risks of proprietary activities, the act generally 

prohibits proprietary trading by insured depository institutions and their 

affiliates and restricts the extent to which these companies can sponsor 

or invest in hedge and private equity funds. Regulators have taken some 

steps to implement this reform. For instance, the Federal Reserve issued 

the final rule and subsequent policy statement on the time frame for the 

effective dates (beginning in July 2014 unless extended by the Federal 

Reserve) after which banking entities must fully conform their activities 

and investments with these requirements. FSOC also issued a study 

recommending the types of monitoring metrics that regulators could use 

to help ensure compliance. In addition, the regulators responsible for 

issuing a rule specifying how affected institutions must comply—the 

Federal Reserve, FDIC, OCC, SEC, and CFTC—issued proposed rules in 

November 2011 and February 2012.

However, others dispute that proprietary trading creates 

significant risks. For example, one market observer questioned the role of 

proprietary trading in the crisis—noting that losses by banks came from 

holdings of mortgage-related securities and not their proprietary trading 

activities. In addition, he noted that banks have expertise and add value 

in conducting trading activities and that such trading is likely not more 

risky than lending.

25

 

23Arnoud W.A. Boot and Lev Ratnovksi, Banking and Trading, IMF working paper, 

October 2012. 

The proposed rules have 

generated debate and interest from thousands of commenters, and some 

in Congress have called for a repeal of the law or delay of its 

implementation, and others have called for regulators to issue a revised 

proposal. As of November 2012, staff from some of the regulators 

responsible for preparing the rules related to proprietary trading and fund 

investment restrictions told us that they were considering the public 

24See GAO, Proprietary Trading: Regulators Will Need More Comprehensive Information 

to Fully Monitor Compliance with New Restrictions When Implemented, GAO-11-529

(Washington, D.C.: 

July 13, 2011). 

25The banking regulators and SEC published their proposed rule on November 7, 2011, 

and CFTC published a substantially similar rule on February 14, 2012.
 

Page 18 GAO-13-195 Financial Regulatory Reform Status

comments and next steps, but could not estimate when the next action 

would occur. In our 2011 report on proprietary trading, we recommended 

that regulators collect and review more comprehensive information on the 

nature and volume of activities potentially covered by the act.26

Regulators have also been implementing Dodd-Frank Act reforms to 

improve protections for consumers and investors. In addition to creating a 

new regulatory body—CFPB—that will consolidate certain rulemaking, 

supervision, and enforcement authorities relating to various consumer 

financial laws, including many of those relating to mortgage lending, the 

act also included changes to securitization practices to better protect 

investors. In addition, the act expands regulatory oversight of credit rating 

agencies and advisers of private funds.

Many bank and nonbank mortgage lenders weakened their underwriting 

standards and made mortgage loans to homebuyers who could not afford 

them or engaged in abusive lending practices before the crisis. After 

many homeowners were unable to make their mortgage payments, many 

of these mortgages went into default and led to widespread foreclosures. 

To address these consumer financial protection failures, the act created 

CFPB, among other reforms. Before the passage of the act, consumer 

financial protection responsibilities were vested in multiple agencies 

across the federal government. The creation of CFPB brought many of 

the consumer financial protection rulemaking and other authorities of the 

federal government into one agency, with the purpose of increasing 

accountability for such responsibilities. The authority for many of these 

responsibilities transferred to CFPB in July 2011, but staff told us that it 

was not allowed to move forward with its full regulatory responsibilities 

until the appointment of its director in January 2012. CFPB has issued 

rules and begun taking enforcement actions, including obtaining refunds 

for consumers and imposing penalties on certain credit card issuers for 

practices that violated the law. For example, in January 2012, CFPB 

issued rules, which were formally published in February 2012, to protect 

consumers who send money electronically to foreign countries. In 

January 2013, the CFPB issued two rules that established numerous 

mortgage servicing requirements.

 

26GAO-11-529. 

Reforms to Address 

Consumer and Investor 

Protection and Other 

Areas Have Begun but 

Remain Incomplete

Creation of CFPB
 

Page 19 GAO-13-195 Financial Regulatory Reform Status

Although CFPB’s mission extends beyond the mortgage market, many of 

its initial rulemaking efforts have focused on this market as the bureau 

works to implement the act’s reforms. For example, the act prohibits a 

creditor from making a residential mortgage loan unless the creditor 

makes a reasonable and good faith determination based on verified and 

documented information that, at the time the loan is made, the consumer 

has a reasonable ability to repay the loan according to its terms. When 

making that determination, the creditor must consider, among other 

things, the consumer’s income and assets, debt obligations, and credit 

history. The act created a presumption of compliance with the repayment 

ability requirement when creditors make “qualified mortgages.”27 The 

Federal Reserve issued a proposed rule in May 2011 that would 

implement the act’s ability-to-repay and qualified mortgage provisions; 

however, due to certain transfers of authority under the Dodd-Frank Act 

CFPB has responsibility for finalizing the proposal. After seeking

additional public comments on new data and information related to this 

proposal in June 2012, CFPB issued a final rule in January 2013 that 

defines qualified mortgages using the criteria specified in the Dodd-Frank 

Act. This rule is to be effective in January 2014. Although intended to 

encourage responsible lending, many market observers (including 

consumer advocates and lenders) previously have expressed concern 

that the rule, as proposed, could result in overly restrictive requirements 

(such as debt service-to-income ratios) that would limit the availability of 

mortgages to lower-income and minority borrowers. However, in a prior 

report, we examined five of the nine qualified mortgage criteria specified 

in the Dodd-Frank Act for which sufficient data were available and 

generally found that, for each year from 2001 through 2010, most 

mortgages would likely have individually met each specific criterion.

28

 

27A qualified mortgage, generally, is a mortgage based on verified and documented 

borrower income, that is typically a 30-year fixed or adjustable rate loan with points, with 

fees that do not exceed 3 percent of the total loan, and with payments that do not result in 

an increase in the principal balance. 

28These criteria address payment of loan principal, length of the mortgage term, 

scheduled lump-sum payments, documentation of borrower resources, and borrower debt 

burden. We were unable to determine the proportion of mortgages that would have met all 

of the criteria we examined due to data limitations. See GAO, Mortgage Reform: Potential 

Impacts of Provisions in the Dodd-Frank Act on Homebuyers and the Mortgage Market, 

GAO-11-656 (Washington, D.C.: July 19, 2011).
 

Page 20 GAO-13-195 Financial Regulatory Reform Status

The act also attempts to improve investor protections through a variety of 

reforms, including reforming securitization practices and requiring 

additional disclosures. According to some market observers, institutions 

that created mortgage-backed securities in the lead-up to the crisis 

engaged in a number of practices that undermined the quality of their 

securities, including not adequately monitoring the quality of the 

underlying mortgages, because they did not bear the risk of significant 

losses if those mortgages defaulted.29 To address this risk and protect 

investors, the act imposes certain risk-retention obligations on securitizers 

to retain an economic interest of no less than 5 percent of the credit risk 

of any securitized asset (such as a residential mortgage) that they 

created unless the asset meets criteria (to be defined by the regulators) 

associated with a lower risk of default. Securitized mortgages that meet 

the criteria are exempt from the risk-retention requirement and are 

referred to as qualified residential mortgages. The act directs the Federal 

Reserve, FDIC, OCC, SEC, FHFA, and the Department of Housing and 

Urban Development (HUD) to jointly prescribe rules to implement these 

requirements. The act also requires additional disclosures to be made to 

investors about these asset-backed securities. Some market participants 

have expressed concern that restrictive criteria for qualified residential 

mortgages would subject some mortgages with relatively low default risks 

to risk retention and make mortgage credit less affordable for many 

borrowers, because the increased securitization costs would be passed 

on to borrowers in the form of higher mortgage interest rates and fees.30

 

29To securitize mortgage loans, mortgage lenders or originators can sell their loans to 

third parties—either directly to securitizing institutions or loan aggregators that serve as 

intermediaries between originators and securitizers—generating funds that could be used 

to originate more loans. In addition to Fannie Mae and Freddie Mac, securitizing 

institutions include investment banks, retail banks, mortgage companies, and real estate 

investment trusts that bundle mortgages and sell them as investment products.

However, FDIC officials have stated that risk retention should not result in 

substantially higher interest rates for non qualified residential mortgage 

borrowers and comes with the benefit of safer and sounder lending

practices. Additionally, rulemaking agencies have indicated that a more 

restrictive definition could help ensure that a sufficient volume of non

qualified residential mortgages subject to risk retention would be available 

for an active, liquid securitization market for such mortgages.

30Restrictive criteria would limit qualified residential mortgages to mortgages with high 

credit quality, while less restrictive criteria would include mortgages with a wider range of 

credit quality

New Securitization Practices 

and Disclosures
 

Page 21 GAO-13-195 Financial Regulatory Reform Status

Although regulators have finalized some rules in this area, they have not 

yet completed all of the rules that would implement the reforms described 

above. In January 2011, SEC published final rules that will require an 

issuer to perform a due diligence analysis of the underlying assets and 

disclose the results.31 However, other key reforms, such as the joint 

rulemaking requirement to define a qualified residential mortgage as well 

as the rulemaking requiring greater disclosure of information related to 

the loans backing specific portions of an asset-backed security remain

incomplete.32

As the financial crisis unfolded in 2007 and 2008, questions were raised 

about the role that credit rating agencies played in the securitization of 

high-risk mortgages into investment-grade securities, the accuracy of the 

credit ratings assigned to these securities, and the integrity of these 

ratings processes. Critics of credit rating agencies also pointed to the 

conflict of interest created by the industry’s predominant compensation 

model in which issuers of securities pay the rating agencies for their 

ratings as a contributing factor to the poor quality of ratings. In response, 

the Dodd-Frank Act mandated additional oversight over the credit rating 

agencies that issued these ratings. For example, the act created an Office 

of Credit Ratings within SEC, which is to provide oversight and enhanced 

regulation of the credit rating agencies registered with SEC as Nationally 

Recognized Statistical Rating Organizations. The act also requires that 

SEC study, among other things, an alternative means for compensating 

 These rules likely will have a significant impact on the 

volume of private (non-enterprise) mortgage-backed securitizations. As a 

result, the rules likely will affect competition in the housing finance 

market, which is currently dominated by the enterprises. We discuss 

reforming the enterprises later in the report. 

 

31In January 2011, SEC published final rules requiring nationally recognized statistical 

rating organizations and issuers to provide additional disclosure about representations 

and warranties in asset-backed transactions. In August 2011, SEC adopted final rules 

regarding ongoing reporting by asset-backed issuers. In September 2011, SEC proposed 

rules to prohibit material conflicts of interest in asset-backed transactions.

32The joint rule could not be finalized until CFPB issued its rule because its definition of a 

qualified residential mortgage cannot be broader than CFPB’s definition of a qualified 

mortgage.

Regulation of Credit Rating 

Agencies and Advisers of 

Private Funds
 

Page 22 GAO-13-195 Financial Regulatory Reform Status

credit rating agencies that would create incentives for accurate ratings.33

SEC issued its study on alternative means for compensating credit rating 

agencies in December 2012.34

Over the last decade, private funds—such as hedge funds and private 

equity funds—proliferated but generally were less regulated, raising 

questions about investor protection and systemic risk to financial markets. 

To address this gap, the act expands regulatory oversight to hedge and 

private equity funds by requiring the investment advisers to these funds to 

register with SEC. This would result in any such advisers that had not 

previously registered to begin providing reports to SEC on their activities 

and being subject to examinations by regulatory staff. SEC has 

completed all of its rulemaking requirements related to private fund 

oversight. SEC and CFTC also issued a joint rule, in consultation with 

FSOC, to establish the form and content of the reports required to be filed 

with SEC and CFTC by investment advisers that are registered under 

both the Investment Advisers Act of 1940 and the Commodity Exchange 

Act. The completion of these rules helps to bring a largely unregulated 

part of the financial markets under regulatory supervision.

However, as of December 2012, SEC had 

yet to issue key rules related to credit rating agencies, several of which 

had statutory deadlines. For example, a rule preventing sales and 

marketing considerations of credit rating agencies from influencing the 

production of credit ratings and a rule that will require these entities to 

submit annual internal control reports to SEC remain in proposed form.

 

33See GAO, Credit Rating Agencies: Alternative Compensation Models for Nationally 

Recognized Statistical Rating Organizations, GAO-12-240 (Washington, D.C.: Jan. 18, 

2012). Among other things, this report discusses alternative models for compensating 

nationally recognized statistical rating organizations that issue credit ratings. GAO 

identified seven alternative models for compensating these entities.

34See SEC, Report to Congress on Assigned Credit Ratings (Washington, D.C.: 

December 2012). 
 

Page 23 GAO-13-195 Financial Regulatory Reform Status

A variety of challenges have affected regulators’ progress in executing 

rulemaking requirements intended to implement the act’s reforms. 

Regulators to whom we spoke indicated that the primary challenges 

affecting the pace of implementing the act’s reforms include the number 

and complexity of the rulemakings required and the time spent 

coordinating with regulators and others. In addition, some regulators 

identified additional challenges, including extensive industry involvement 

through comment letters and litigation resulting from rulemakings, 

concurrently starting up a new regulatory body and assuming oversight 

responsibilities, and resource constraints.

The regulators identified the number and complexity of the required 

rulemakings as a primary impediment to their implementation of financial 

regulatory reforms. In particular, regulators were tasked with a large 

volume of rulemakings and other key actions; in many cases, the act 

mandated their completion in relatively short time frames compared to the 

typical rulemaking process. For example, we identified more than 80 

provisions of the act for which SEC is responsible for (solely or jointly) 

developing rules or taking other key actions. As of December 2012, SEC 

had proposed or finalized rulemakings for at least 70 of these provisions.

Similarly, we identified more than 50 provisions for which CFTC is 

responsible for (solely or jointly) developing rules, all but one of which 

CFTC had proposed or finalized. According to SEC and CFTC staff, this 

represents a significant increase in their rulemaking agendas.

In many cases, the rulemakings also involved complex issues, such as 

developing regulation for a previously unregulated market function. 

Implementing such complex regulatory reforms through the rulemaking 

process has resulted in delays, as the following examples illustrate. 

• One of the major reform areas of the act requires that previously 

unregulated OTC swaps be brought under the regulatory umbrella. 

Regulators indicated this presented a unique set of challenges 

because the swaps market is complex and involves a large number of 

domestic and international participants. According to SEC staff, they 

had to research and acquire expertise on a range of issues. To 

acquire diverse perspectives and information, staff also held meetings 

and roundtables with industry participants and other agencies and 

foreign regulators before proposing the rules.

Regulators Have 

Faced Various 

Challenges 

Implementing 

Reforms

Number and Complexity of 

Rulemakings Has Delayed 

the Implementation of 

Certain Reforms
 

Page 24 GAO-13-195 Financial Regulatory Reform Status

• Regulators responsible for implementing the restrictions on 

proprietary trading and hedge and private equity fund investing also 

indicated that developing rules on these topics has been challenging 

because of the knowledge they had to acquire and the multiple 

perspectives and interests of market participants they had to consider. 

The complexities of implementing the proprietary trading ban was 

highlighted in the rule proposed in November 2011 and February 

2012, which included more than 750 questions seeking input from 

market participants to help inform regulators’ decision making.

• In other cases, the complexity involved identifying and developing 

new frameworks or standards for market participants. For example, 

regulators must replace references to credit ratings in their regulations 

(that is, to regulated entities’ use of or dependence on ratings) and 

substitute alternative standards of creditworthiness.35

Although the regulators have missed statutory deadlines to complete 

rulemakings, regulators told us that some of the mandated time frames 

were ambitious. For example, CFTC staff described the statutory 

timetable as a challenge, noting that they were required to issue a 

significant number of rules within the first year of the act’s passage. 

According to some of the regulators with whom we spoke with, their staffs 

have prioritized “getting it right” over meeting statutory deadlines, which 

has resulted in missing a number of the act’s deadlines.

According to the 

regulators, creating objective and consistent standards for 

creditworthiness and defining such standards by regulation is difficult 

and finding an alternative to the ratings these agencies produce 

requires a thorough understanding of how the process has functioned 

in capital markets. Additionally, replacing the credit ratings with an 

alternative standard affects other regulations and policies that rely on 

credit ratings. Because of the broad effects that removal of the 

references to credit ratings would have, regulators stated that they 

had to approach this task with great care to avoid unintended 

consequences, which is why some of these rules have yet to be 

finalized.

 

35GAO-12-240. 
 

Page 25 GAO-13-195 Financial Regulatory Reform Status

Regulators’ progress in implementing the act’s reforms also has been 

delayed because of the need to coordinate with other domestic and foreign 

regulators. We identified 58 provisions in which the act specifically 

mandates that regulators issue joint rules or consult with other federal 

financial regulators during rulemakings or other key actions. In other cases, 

reforms require regulators to implement rules that impact or are impacted 

by the rulemakings of other regulators. For example, rules related to what 

constitutes a “qualified residential mortgage” for securitizations have been 

awaiting CFPB’s issuance of the rule on what constitutes a “qualified 

mortgage” because the act stipulates that the definition of a “qualified 

residential mortgage” cannot be broader than the definition of a “qualified 

mortgage.” CFPB issued the final “qualified mortgage” rule in January 

2013.

According to many regulators with whom we spoke, coordination among 

domestic regulators and between domestic and foreign regulators has 

improved the quality of the rulemakings. For example, these efforts likely 

have eliminated duplication and helped fill regulatory gaps to limit risks 

migrating to unregulated markets, according to the regulators. 

Nevertheless, coordination with other regulatory bodies lengthens the 

time required to implement reform. To facilitate domestic coordination, 

while financial regulators employed some formal communication 

methods, they mostly used informal communications strategies and tools. 

Regulators generally held formal interagency meetings early in the 

rulemaking process, then held recurring meetings at different staff levels 

and facilitated coordination through informal communications (e-mail, 

telephone conversations, and one-on-one staff conversations). For 

example, FDIC, OCC, and the Federal Reserve held a principal-level 

meeting to discuss the major issues relating to development of risk-based 

capital rules. Afterwards, the agencies formed an interagency working 

group at the staff level that continues to work on these rules.36

 

36As we previously reported, agencies can use different types of collaborative 

mechanisms, such as interagency groups. Our report discusses key considerations for 

implementing these groups. See GAO, Managing for Results: Key Considerations for 

Implementing Interagency Collaborative Mechanisms, GAO-12-1022 (Washington, D.C.: 

Sept. 27, 2012).

In addition, 

FSOC has established a framework for consultation when it is required to 

be consulted or may make recommendations.

Although Coordination 

among Regulators 

Improves Rules, It Has 

Delayed Implementation of 

Some Reforms
 

Page 26 GAO-13-195 Financial Regulatory Reform Status

On the international level, U.S. regulators also have coordinated with 

foreign regulators and with international standard-setting bodies. For 

example, in December 2012, FDIC and the Bank of England issued a joint 

paper that discusses their common view about how to resolve failures of 

large financial institutions. Also, CFTC and SEC coordinated with securities 

and futures regulators in other countries on various derivatives reform 

provisions by participating in several international groups as well as 

numerous conference calls and meetings.

37 OFR staff have also 

coordinated with international regulators and financial market participants 

through the FSB to develop standards for a LEI that is intended to 

accurately identify parties to financial transactions.38

Although the federal financial regulators have developed and fostered 

several mechanisms to facilitate coordination and believe these efforts 

have improved the quality of the rulemakings, several regulators said that 

interagency coordination has increased the amount of time needed to 

develop and finalize several rulemakings. Regulators stated that working 

with other agencies—both domestically and internationally—can be 

difficult for a variety of reasons. For example, each regulator has different 

statutory authorities and obligations, jurisdictions, and missions. Each 

regulator has unique expertise and experience with the financial products 

or services it regulates and the supervisory structures of each agency are 

different. These differences can make reaching consensus (for instance, 

by aligning or reconciling regulations) difficult and time consuming. For 

example, although 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 due to their regulatory jurisdiction 

OFR played a key role 

leading work streams and working with other regulators and industry to 

provide recommendations to the Group of Twenty to guide the governance, 

development, and implementation of a global LEI system. During the 

implementation phase, OFR is serving as a vice-chair on the LEI 

Implementation Group and will continue to provide leadership and support

as this group works towards meeting the March 2013 target for launching 

the LEI system.

 

37See GAO, Dodd Frank Act: Agencies’ Efforts to Analyze and Coordinate Their Rules, 

GAO-13-101 (Washington, D.C.: Dec. 18, 2012). 

38For additional information on the legal entity identifier, see GAO, Bankruptcy: Agencies 

Continue Rulemakings for Clarifying Specific Provisions of Orderly Liquidation Authority, 

GAO-12-735 (Washington, D.C.: July 12, 2012).
 

Page 27 GAO-13-195 Financial Regulatory Reform Status

over different products. In addition, regulators told us that they had to 

allow extra time for other regulators to review draft rules, hold 

discussions, and reach consensus.

The volume of comments that regulators have received on some rules 

also affected the pace of rule development. For example, regulatory staff 

told us that they had received more than 19,000 comment letters on the 

proposed proprietary trading ban rules, further complicating the 

rulemaking process. According to these staff, the volume of comments 

from market participants and consumer groups has presented challenges 

for deciding the content of a final rule—as in the case of market 

participants advocating opposing or disparate positions, which regulators 

then needed to consider and perhaps reconcile. CFTC staff cited the 

example of comments relating to the amount of business that could be 

done before an entity would be required to register as a swaps dealer. 

Suggested amounts for the de minimus exception ranged from the 

millions to the billions of dollars. Although some comments regulators

received on rules were multiple versions of similar form letters, in other 

cases the letters were unique and could be lengthy (more than 200 

pages). OCC staff noted that the proprietary trading rule received more 

than 400 nonform letters with substantive comments, some of which were 

more than 100 pages each. The capital rules generated fewer comments, 

but these letters were very lengthy and had to be carefully considered. 

Regulator staff told us that high comment volume lengthens the 

rulemaking process and requires more staff review and analyze because 

each regulator is legally required to consider every comment it receives.

In addition, industry involvement, including filing legal challenges, has 

delayed some regulatory efforts. According to one public interest 

association, intense industry lobbying efforts and the threat of lawsuits 

have been roadblocks to successful implementation of consumer 

protection reforms. Also, an industry-sponsored study has criticized the 

impending reforms, such as the ban on proprietary trading. In other 

cases, legal challenges filed by the industry have affected the pace of 

reforms. For example, in October 2011, CFTC approved a final rule on 

position limits for futures, options, and swaps related to 28 physical 

commodities, such as agricultural and energy products or metals, an 

Volume of Comments and 

Industry Challenges Also 

Have Affected Pace of 

Implementation
 

Page 28 GAO-13-195 Financial Regulatory Reform Status

action that the agency believed the act mandated.39 However, in 

September 2012, the United States District Court for the District of 

Columbia overturned the final rule after finding that the agency did not 

prove that the Dodd-Frank Act granted CFTC authority to issue the 

regulations without first determining the regulation was “necessary” or 

“appropriate” and therefore the regulations were vacated.40 CFTC 

appealed the District Court’s decision in November 2012, but until the 

appeal is completed CFTC’s requirements are not in effect for market 

participants.41 In another example, in July 2011 the United States Court of 

Appeals for the District of Columbia Circuit overturned SEC’s rule on 

proxy access requirements on the basis that SEC had failed to perform 

an adequate cost-benefit analysis of the rule’s impact.42 Although this rule 

was not mandated by the Dodd-Frank Act, SEC staff told us that because 

of this decision, they have been spending additional time on developing 

cost-benefit analyses for the rules they must develop under the act, which 

has lengthened the time needed for rulemaking.

The need to establish new regulatory bodies or offices mandated by the 

act affected the pace of implementation of some reforms, as illustrated by 

the following examples: 

• The staff responsible for establishing the new federal consumer 

financial protection agency—CFPB—faced the challenge of 

simultaneously forming its agency structure, initiating supervision and 

oversight responsibilities, and creating rules mandated by the act. 

After the act was passed in July 2010, staff detailed from Treasury 

 

39Futures are standard agreement contracts to buy or sell a particular amount of a 

commodity or financial instrument at a specific time in the future. An option is a contract that 

gives the holder of the option the right, but not the obligation, to buy (call option) or sell (put 

option) a specified amount of the underlying reference item at a predetermined price (strike 

price) at or before the end of the contract. A swap is a contract that typically obligates one 

party to make a stream of payments to another in exchange for a stream of payments from 

the other party, such as an interest rate swap in which one party agrees to exchange a 

stream of fixed interest-rate payments for a stream of variable interest-rate payments.

40International Swap and Derivatives Assoc. et al. v. CFTC, 2012 U.S. Dist. LEXIS 

139788 (D.C. Dist., Sept. 28, 2012).

41The case was appealed to the United States Court of Appeals for the District of 

Columbia Circuit on November 16, 2012.

42Business Roundtable and Chamber of Commerce of United States of America v. SEC, 

647 F. 3d 114, 1148-1149 (D.C. Cir. 2011).

Other Challenges to 

Reform Implementation 

Included Establishing New 

Entities
 

Page 29 GAO-13-195 Financial Regulatory Reform Status

offices and other federal agencies began hiring new staff and

establishing internal administrative procedures and structures. 

Although rulemaking and other authorities relating to the consumer 

financial laws transferred to CFPB in July 2011, the agency did not 

have a director until January 2012. Until then, it was limited in its 

ability to issue certain rules and conduct certain oversight of entities 

other than banks. As of October 2012, the agency had about 1,000 

staff and anticipates reaching approximately 1,300 staff sometime in 

2013. While establishing regulatory operations, its staff also had to 

develop various rulemakings required by the act. As noted previously, 

CFPB had been working on a complex rule that would promote 

responsible mortgage lending by requiring creditors to consider a 

consumer’s repayment ability before making a residential mortgage 

loan. CFPB staff acknowledged that establishing their agency, 

conducting its operations, and developing various rulemakings has 

been challenging and likely slowed progress in some areas.

• The creation of new offices in SEC also has affected the pace of that 

agency’s rulemakings. More specifically, the Dodd-Frank Act required 

the creation of five new offices in SEC—including an Office of Credit 

Ratings.43

• OFR also has faced the challenge of trying to build a world-class 

research organization from the ground up while meeting shorter-term 

goals and responsibilities. For example, as a new, relatively unknown 

entity OFR had to overcome a lack of name recognition as it has 

sought to hire researchers and other staff. OFR officials told us that the 

organization has been making steady progress to overcome this 

challenge, and has attracted highly qualified researchers and others to 

senior staff positions. The absence of a Senate-confirmed director for 

the organization until January 2013 slowed the process. While 

establishing itself, OFR also has been conducting work to further its 

mission to provide ongoing support to FSOC and standardize the types 

and format of data collected and reported by financial regulators.

This office was established when SEC named its director in 

June 2012. As a result, some activities were started by other SEC 

divisions and offices—including finalizing rules for credit rating 

agencies that require them to disclose the information and 

assumptions used in ratings they issue—according to SEC officials.

 

43The other four new offices within SEC are the Office of the Investor Advocate, Office of 

Minority and Women Inclusion, Office of the Whistleblower Protection, and Office of 

Municipal Securities.
 

Page 30 GAO-13-195 Financial Regulatory Reform Status

According to some regulators, their efforts to fully implement the reforms 

also have been delayed due to resource constraints their agencies face. 

For example, the Dodd-Frank Act increased SEC’s and CFTC’s 

responsibilities, including their rulemaking responsibilities. However, 

according to SEC and CFTC staff, their agencies did not receive 

commensurate increases in appropriations. As a result, staff from both 

CFTC and SEC told us that attempting to finalize so many interrelated 

and often complex rules with their existing staffing levels has been 

challenging. CFTC staff told us that personnel responsible for some 

rulemakings have had to do the work of more than one person, which 

increases the potential for errors and delays that interrupt the normal flow 

of rulemaking. Looking forward, CFTC and SEC staff expressed concerns 

about their ability to carry out rule enforcement. To mitigate these 

concerns, CFTC requested 305 additional full-time equivalent positions in 

its 2013 budget request. Likewise, SEC requested an additional 196 fulltime equivalent positions in its 2013 budget request.

Although the act addressed a number of weaknesses of the regulatory 

system that were exposed by the recent or past financial crises, some 

risks remain and others have emerged. In 2009, we reported on many of 

the limitations in the U.S. financial regulatory system that the 2007-2009 

crisis once again revealed.44 For example, we noted that regulators had 

struggled, and often failed, to mitigate the systemic risks posed by large 

or interconnected financial conglomerates and to help ensure they 

adequately manage their risks. Problems in financial markets also 

resulted from the activities of less-regulated market participants—such as 

nonbank mortgage lenders, hedge funds, and credit rating agencies—

some of which played significant roles in the financial markets. In 

addition, we noted that the increasing prevalence of new and more 

complex investment products posed challenges for regulators, investors, 

and consumers. In our report, we offered a framework for evaluating 

regulatory reform proposals that described characteristics that should be 

reflected in any new regulatory system (see table 2). This framework can 

serve as a useful lens for examining how weaknesses were addressed 

through the act and where additional work remains.

 

44GAO-09-216. 

Various Areas 

Continue to Pose 

Risks, and Regulatory 

Actions to Mitigate 

These Risks Have Not 

Been Finalized or 

Implemented
 

Page 31 GAO-13-195 Financial Regulatory Reform Status

Table 2: GAO’s 2009 Framework for Evaluating Financial Regulatory Reform

Characteristic Description

Clearly defined regulatory 

goals

Goals should be clearly articulated and relevant, so that regulators can effectively carry out their 

missions and be held accountable. Key issues include considering the benefits of reexamining the 

goals of financial regulation to gain needed consensus and making explicit a set of updated 

comprehensive and cohesive goals that reflect today’s environment.

Appropriately comprehensive Financial regulations should cover all activities that pose risks or are otherwise important to meeting 

regulatory goals and should ensure that appropriate determinations are made about how extensive 

such regulations should be, considering that some activities may require less regulation than others. 

Key issues include identifying risk-based criteria, such as a product’s or institution’s potential to 

create systemic problems, for determining the appropriate level of oversight for financial activities 

and institutions, including closing gaps that contributed to the current crisis.

Systemwide focus Mechanisms should be included for identifying, monitoring, and managing risks to the financial 

system regardless of the source of the risk. Given that no regulator is currently tasked with this, key 

issues include determining how to effectively monitor market developments to identify potential risks; 

the degree, if any, to which regulatory intervention might be required; and who should hold such 

responsibilities. 

Flexible and adaptable A regulatory system that is flexible and forward looking allows regulators to readily adapt to market 

innovations and changes. Key issues include identifying and acting on emerging risks in a timely way 

without hindering innovation.

Efficient and effective Effective and efficient oversight should be developed, including eliminating overlapping federal 

regulatory missions where appropriate, and minimizing regulatory burden without sacrificing effective 

oversight. Any changes to the system should be continually focused on improving the effectiveness 

of the financial regulatory system. Key issues include determining opportunities for consolidation 

given the large number of overlapping participants now, identifying the appropriate role of states and 

self-regulation, and ensuring a smooth transition to any new system.

Consistent consumer and 

investor protection

Consumer and investor protection should be included as part of the regulatory mission to ensure that 

market participants receive consistent, useful information, as well as legal protections for similar 

financial products and services, including disclosures, sales practice standards, and suitability 

requirements. Key issues include determining what amount, if any, of consolidation of responsibility 

may be necessary to streamline consumer protection activities across the financial services industry.

Regulators provided with 

independence, prominence, 

authority, and accountability

Regulators should have independence from inappropriate influence, as well as prominence and 

authority to carry out and enforce statutory missions, and be clearly accountable for meeting 

regulatory goals. With regulators with varying levels of prominence and funding schemes now, key 

issues include how to appropriately structure and fund agencies to ensure that each one’s structure 

sufficiently achieves these characteristics.

Consistent financial oversight Similar institutions, products, risks, and services should be subject to consistent regulation, 

oversight, and transparency, which should help minimize negative competitive outcomes while 

harmonizing oversight, both within the United States and internationally. Key issues include 

identifying activities that pose similar risks, and streamlining regulatory activities to achieve 

consistency.

Minimal taxpayer exposure A regulatory system should foster financial markets that are resilient enough to absorb failures and 

thereby limit the need for federal intervention and limit taxpayers’ exposure to financial risk. Key 

issues include identifying safeguards to prevent systemic crises and minimizing moral hazard. 

Source: GAO.
 

Page 32 GAO-13-195 Financial Regulatory Reform Status

In a number of ways, the act’s reforms—if implemented effectively—could 

address many characteristics of our framework. For example, the 

consistency of consumer protection could be increased through the 

establishment of CFPB, which consolidated certain of the consumer 

protection rulemaking, supervision, and enforcement authorities 

possessed by seven different federal agencies.45

Nevertheless, some potential risks remain and others have emerged in 

the years following the 2007-2009 crisis, including the following:

The creation of FSOC 

could help to address the framework’s call for a systemwide focus on 

risks. Other Dodd-Frank Act reforms also address additional areas on 

which the framework touches. For example, if the new resolution 

authority—OLA—is effective, it could reduce the potential for additional 

taxpayer exposure arising from the failure of large financial institutions. 

Furthermore, regulations that will expand disclosures about mortgagebacked securities and require issuers to retain a portion of the credit risk 

of these securities could improve investor protection.

Regulatory structure. In the framework, we called for a more effective 

and efficient regulatory system. Specifically, we noted several 

characteristics of effective and efficient oversight, including eliminating 

overlapping federal regulatory missions where appropriate, and 

minimizing regulatory burden without sacrificing effective oversight. To 

this end, the Dodd-Frank Act abolished the Office of Thrift Supervision, 

transferring its functions to OCC, FDIC, and the Federal Reserve. 

However, the act did not otherwise extensively consolidate the roles and 

responsibilities of the financial regulators and created new entities, such 

as OFR and CFPB. Consequently, multiple regulators may oversee 

different components of the same large, complex financial institutions 

while retaining their independence, differing approaches, and specific 

statutory duties and authorities, including rulemaking and enforcement.

46

 

45The agencies are the Federal Reserve, FDIC, HUD, OCC, NCUA, Federal Trade 

Commission, and the now defunct Office of Thrift Supervision. 

46In November 2012, a bill was introduced into Congress that would have combined SEC 

and CFTC into a new regulatory agency called the Securities and Derivatives 

Commission, which would have jurisdiction over securities, derivatives, options, futures, 

and related markets and instruments. This bill was not acted upon before the 

Congressional term ended, and therefore would need to be newly introduced in another 

Congressional term to be considered again.
 

Page 33 GAO-13-195 Financial Regulatory Reform Status

Given the fragmented regulatory structure, regulators must continue to 

coordinate actions across multiple agencies and try to reconcile differing 

approaches and authorities to better ensure effective oversight of large 

financial firms. Without sufficient coordination, financial institutions could 

seek to take advantage of variations in how agencies implement 

regulatory responsibilities in order to be subject to less scrutiny. We have 

previously noted the role that FSOC could play in promoting coordination 

among its member agencies, including during the rulemaking process.47

Fannie Mae and Freddie Mac. Our 2009 framework emphasizes that 

effective reform would minimize taxpayer exposure to financial risk, 

particularly when market participants encounter financial difficulties. 

However, the act did not address the futures of Fannie Mae and Freddie 

Mac that together support the majority of single-family mortgage loans. 

Given mounting losses, in September 2008 the enterprises were put into 

conservatorship and provided access to federal assistance through Senior 

Preferred Stock Purchase Agreements with the U.S. Treasury; together 

they have received over $187 billion in federal assistance as of the end of 

fiscal year 2012. Although recently the enterprises began earning profits 

that are being returned to the U.S. Treasury, the act did not address the 

existing taxpayer exposure from the enterprises or provide a road map to 

mitigate potential future losses related to them.

However, FSOC’s Chairperson has noted that he does not have the 

authority to force agencies to coordinate, and neither he, nor FSOC as a 

whole, can force agencies to adopt compatible policies and procedures.

48

Although policymakers, regulators, and others have developed proposals 

for the future structure and operations of the enterprises, they have not 

taken any final actions to resolve their status. In February 2011, Treasury 

and HUD issued a plan that outlines a vision for the government’s role in 

housing finance, including reducing the activities of the enterprises over 

time until they are eventually fully wound down. In addition, in February 

2012, FHFA, which supervises and regulates the enterprises’ operations, 

issued a strategic plan that identified three strategic goals for the next 

phase of the conservatorships. The goals were building a new 

 

47GAO-12-886. 

48In late 2008, a combination of government-led actions ensured the secondary mortgage 

market kept functioning, including Treasury’s financial backstop of these enterprises’ debt 

and mortgage-backed securities (MBS) holders; and MBS purchases by Treasury and the 

Federal Reserve.
 

Page 34 GAO-13-195 Financial Regulatory Reform Status

infrastructure for the secondary mortgage market, gradually contracting 

the enterprises’ dominant presence in the marketplace while simplifying 

and shrinking their operations, and maintaining foreclosure prevention 

activities and credit availability for both new and refinanced mortgages.

In August 2012, FHFA took two actions affecting the enterprises. First, to 

encourage greater participation in housing markets by private firms, 

FHFA directed the enterprises to raise the fees they charge lenders for 

securitizing their mortgage loans to reduce the cost difference between 

securitizations done by the enterprises and those done by private firms. 

Second, FHFA, in conjunction with Treasury, revised the senior preferred 

stock purchase agreements to have the enterprises pay dividends to the 

U.S. Treasury based on their net worth (when positive) rather than a fixed 

percentage of the outstanding senior preferred stock. Among other things,

this change should eliminate the need for the enterprises to borrow from 

Treasury to pay such dividends. In October 2012, FHFA also sought 

public comment on a proposal for developing a new mortgage 

securitization platform to process payments and perform other functions 

that could be used by multiple issuers that would replace the enterprises’ 

proprietary systems. Although such proposals and plans have been put 

forward, as of December 2012, no definitive plan had been developed 

and the enterprises remain in conservatorship, which places taxpayers at 

continued risk. Furthermore, given the large role that the enterprises play 

in the mortgage market, the future of mortgage lending depends, in part, 

on how the enterprises are resolved. The Treasury and HUD plan 

acknowledges that changes in the role of the enterprises will also require 

changes in the activities of HUD’s mortgage insurance and guarantee 

programs to ensure that the private market rather than the government 

expands its market share. 

Money market funds. The framework calls for improving the regulatory 

system by ensuring a focus on risks that could affect the system as a 

whole. However, one risk that continues to raise significant concerns is 

the potential systemic risk posed by money market funds (MMF). MMFs 

are mutual funds that seek to offer investors three primary features: return 

of principal, liquidity, and a market-based rate of return. During the 

financial crisis, runs on MMFs led to severe disruptions in the short-term 

credit markets in which the funds played a significant role. After a number 

of MMFs recorded significant decreases in the value of portfolio holdings 

when the market for asset-backed commercial paper collapsed in the 
 

Page 35 GAO-13-195 Financial Regulatory Reform Status

summer and fall of 2007, these funds’ sponsors absorbed these losses.49

However, in 2008, the sponsor of the Reserve Primary Fund did not 

provide support for the relatively small losses incurred by this MMF, which 

led to a general run of investors withdrawing their money from money 

market funds, creating severe funding pressures for issuers of 

commercial paper. The run was stopped by unprecedented interventions 

by Treasury and the Federal Reserve to provide guarantees and liquidity 

support to the industry.50

In 2010, the Commission adopted the first round of reforms to boost the 

resilience of MMF portfolios. For example, SEC required MMFs to hold 

more highly liquid assets and to disclose their portfolio holdings monthly. 

Some market observers contend these reforms are sufficient to address 

any risk from these funds and that further reforms are unnecessary. 

However, regulators and others continue to be concerned. According to a 

paper issued by the International Monetary Fund, strengthening the 

The former SEC Chairman—Mary Schapiro—

stated that the events of the financial crisis highlighted that the risks 

posed by MMFs stem from flaws inherent in the structure of these funds 

(such as valuation methods that make funds susceptible to runs and a 

reliance on discretionary sponsor support for stability). She further stated 

that she considers the structural reform of money market funds one of the 

pieces of unfinished business from the financial crisis.

 

49For an asset-backed commercial paper issuance, a company may sell receivables to a 

bank, that, in turn, will issue them to investors as commercial paper. Commercial paper 

securities are short-term investment vehicles with a maturity that is typically between 90 

and 180 days and are backed by the expected cash inflows from the receivables. As the 

receivables are collected, the originators are expected to pass the funds to the bank or 

conduit, which then passes these funds to the note holders.

50On September 19, 2008, Treasury announced the Temporary Guarantee Program for 

Money Market Funds, which temporarily guaranteed certain investments in participating 

MMFs. Under this program, Treasury guaranteed that upon liquidation of a participating 

MMF, the fund’s shareholders would receive the fund’s stable share price of $1 for each 

fund share owned as of September 19. On the same day, the Board of Governors of the 

Federal Reserve System authorized the creation of the Asset-Backed Commercial Paper 

(ABCP) Money Market Mutual Fund Liquidity Facility under section 13(3) of the Federal 

Reserve Act of 1913 to provide liquidity support to MMFs facing redemption pressures and 

to promote liquidity in the asset-backed commercial paper markets. To quickly support this 

market, the Board authorized loans to depository institutions eligible to borrow from the 

discount window and their primary dealer affiliates to purchase ABCP from MMFs. The 

Board provided these funds the option to sell their asset-backed commercial paper at 

amortized cost—the carrying value of the investment—rather than at deeply discounted 

prices. This program was intended to help MMFs raise cash in a way that did not 

exacerbate market stresses.
 

Page 36 GAO-13-195 Financial Regulatory Reform Status

regulation of MMFs is critical especially because U.S. regulators are now 

prohibited from using the types of emergency authorities they employed 

in the recent crisis, such as the government-backed guarantees of MMFs’ 

obligations to shareholders that prevented further problems.

In June 2012, the SEC Chairman discussed the need for SEC to pursue 

additional reforms, including potentially requiring funds to have a floating 

net asset value per share or to maintain a capital buffer of assets to absorb 

day-to-day fluctuations in the value of the funds’ portfolio securities. The 

group that represents mutual funds—the Investment Company Institute—

issued a letter noting that SEC’s 2010 reforms improved the credit quality, 

maturity, liquidity, and transparency of money market funds and arguing 

that the additional changes contemplated by the SEC Chairman would 

effectively put an end to money market funds as an investment vehicle, 

which would harm investors and eliminate a funding source for many 

businesses. In August 2012, a majority of the SEC commissioners 

informed the SEC Chairman that they would not support a staff proposal to 

reform the structure of money market funds without further study. In 

September 2012, these commissioners posed several questions to SEC 

staff regarding various aspects of money market funds, which were 

addressed in a study issued in November 2012.

51

FSOC has urged SEC and other members to take certain actions to 

address the risks posed by cash management vehicles similar to MMFs. 

For instance, in July 2012 FSOC recommended that its members align 

regulation of cash management vehicles within their regulatory jurisdiction 

to limit the susceptibility of these vehicles to the risk of runs. Furthermore, 

at a November 2012 meeting, FSOC—under its authority to recommend 

that a primary financial regulatory agency apply new or heightened 

standards or safeguards to financial activities or practices conducted by 

bank holding companies or nonbank financial companies that create or 

increase the risk of significant liquidity, credit, or other problems—issued 

several proposed recommendations for reforming MMFs for a 60-day 

However, as of 

December 2012, no official agency action had occurred. 

 

51The study addresses the commissioners’ specific questions related to MMFs including 

the funds’ role in the 2008 crisis, changes in MMF characteristics around the 2010 

reforms, and how future reforms could affect the demand for investments in MMFs.
 

Page 37 GAO-13-195 Financial Regulatory Reform Status

public comment period.52 Similar to those proposed by the SEC 

Chairman, these proposed alternatives for reform include requiring MMFs 

to have a floating net asset value per share, maintain a buffer of assets of 

up to 1 percent of net asset value to absorb day-to-day fluctuations in the 

value of the funds’ portfolio securities and allow the funds to maintain a 

stable net asset value.53

Concentration of risks. The framework also calls for the U.S. regulatory 

system to subject all activities posing risks to appropriate oversight and 

protections. However, market observers have raised concerns that key 

areas—the tri-party repurchase (repo) market and swaps 

clearinghouses—in which financial risks have been concentrated lack 

adequate protections.

At the November meeting, the FSOC Chairman 

also noted that it was still preferable for the responsible regulator—SEC—

to take the appropriate actions but absent such SEC actions, other 

regulators might have to act. However, although FSOC can make such 

recommendations and agencies must respond to such recommendations, 

FSOC cannot require that such changes be implemented.

54

 

52FSOC’s recommendations were published in the Federal Register on November 19, 

2012 with a 60-day comment period. Proposed Recommendations Regarding Money 

Market Mutual Fund Reform, 77 Fed. Reg. 69455 (Nov. 19, 2012).

The financial crisis revealed weaknesses in the 

design of the U.S. tri-party repo market, a funding mechanism used by 

major broker-dealers to finance their inventories of securities. However, 

currently only two institutions provide credit to facilitate transactions in this 

market. According to the Federal Reserve Bank of New York, these 

53The 1 percent of net asset value requirement would be paired with a requirement that 3 

percent of a shareholder’s highest account value in excess of $100,000 during the 

previous 30 days be made available for redemption on a delayed basis. As an alternative, 

FSOC also proposed requiring MMFs to have a buffer of assets of up to 3 percent to 

provide explicit loss-absorption capacity that could be combined with other measures to 

enhance the effectiveness of the buffer and potentially increase the MMFs’ resiliency. 77 

Fed. Reg. 69455, 69456. After the comment period closes FSOC, will consider the 

comments and may issue a final recommendation to SEC, which pursuant to the DoddFrank Act, would be required to impose the recommended standards, or similar standards 

that FSOC deems acceptable, or explain in writing to FSOC within 90 days why it has 

determined not to follow the recommendation. If SEC decides to accept FSOC’s 

recommendation, it is expected that SEC would implement the recommendation through 

its own rulemaking process.

54A repo is the sale of a security, or a portfolio of securities, by one party to another party, 

combined with an agreement to repurchase the security or portfolio on a specified future 

date at a prearranged price. A tri-party repo is distinguished by the involvement of a third 

party, a clearing bank that provides custody and settlement services related to the 

transaction.
 

Page 38 GAO-13-195 Financial Regulatory Reform Status

weaknesses could rapidly elevate and propagate systemic risk. For 

instance, it became apparent during the crisis that the market’s 

infrastructure to settle transactions had fundamental flaws that could lead 

to serious instability during periods of market stress. In its 2012 Annual 

Report, FSOC notes that the elimination of most intraday credit exposure 

and the reform of collateral practices in this market continue to be areas 

of intense focus for the council.

The resiliency of the tri-party repo market is important for a number of 

reasons. First, the market serves as a tool for cash and liquidity 

management and for short-term borrowing for a range of financial 

intermediaries, including money market funds, insurance companies, 

banks, and securities dealers, all of which play an important role in 

supporting the savings and investment programs of households, small 

businesses, and nonfinancial corporations. Second, the tri-party repo 

market is currently the source of funding for some $1.8 trillion in securities 

held by securities dealers and only two banks currently act as agents and 

clearing organizations in the vast majority of tri-party repurchase 

agreements.55

Market participants and regulators have made some progress in 

addressing the tri-party repo market shortcomings and enhancing 

protections. For instance, the current tri-party repo market is smaller than at 

its peak and generally funds higher-quality collateral than it did before the 

crisis. However, certain vulnerabilities remain. According to testimony by a 

Federal Reserve official, the reliance on discretionary intraday credit in the 

tri-party settlement process poses difficult dilemmas for cash lenders, 

borrowers, and clearing banks during periods of market stress, which could 

result in securities dealers experiencing a sudden and acute loss of 

funding. Furthermore, key stakeholders believe that not as much progress 

has been made—or made as quickly—as warranted by the seriousness of 

the risks this market poses. Consequently, a task force of market 

participants that regulators convened issued a final report in February 2012 

calling for a settlement process that relies less on extensions of credit. The 

Federal Reserve also has acted to reduce the reliance of market 

participants on this form of funding by encouraging market participants over 

Managing the interdependency of financial products is an 

important factor in reducing systemic risk and enhancing the stability of 

the U.S. financial system.

 

55The two clearing banks are JPMorgan Chase and The Bank of New York Mellon.
 

Page 39 GAO-13-195 Financial Regulatory Reform Status

which it has direct authority to implement the task force recommendations 

in a timely fashion. However, in congressional testimony, a Federal 

Reserve official acknowledged continued work is needed to generate 

additional solutions for reducing systemic risk.

Another source of concentrated financial risks arises from the activities of 

clearinghouses for financial products, and some of the reforms of the act 

could expand this risk. For instance, by requiring that most swaps be 

cleared through clearinghouses rather than the OTC market, the act 

attempts to reduce the vulnerability of the financial system to the failure of 

one or a few of the major swap dealers by transferring credit risk from the 

swap counterparties to the clearinghouse. However, some experts noted 

this reform concentrates credit risk at the clearinghouses and, in effect, 

creates a source of systemic risk. For example, a former regulatory 

official told us that clearinghouses in the new swaps market will be “too 

big to fail” and pose the same moral hazard problem as large financial 

institutions because the Dodd-Frank Act includes a provision allowing the 

Federal Reserve to assist certain clearinghouses. In addition, experts 

commented that clearinghouses that become engaged in clearing lessstandardized swaps could expose themselves to greater risks and more 

complex risk-management challenges. Regulators have taken some 

actions that could mitigate the risk posed by these clearinghouses. In July 

2012, FSOC designated several clearinghouses as systemically important

financial market utilities, which will subject these entities to heightened 

prudential oversight by the Federal Reserve.

Although many of the Dodd-Frank Act’s reforms and these other regulatory 

efforts seek to address risks arising from large institutions and other 

concentrations of risk, some market observers noted that risks that could 

have systemic implications could also arise from other sources. For 

example, one academic noted that during the crisis the activities of some 

smaller institutions, such as those involved with asset-backed 

securitizations, were not individually problematic but became so as 

numerous institutions experienced losses, which, in turn, spread to affect 

others due to the interconnectedness of the system. Such threats to 

financial stability could stem from a large number of institutions that 

encounter trouble with certain risky products or from soundness problems 

that arise at a group of smaller institutions, such as regional banks. The act 

includes some reforms that, if effectively implemented, could minimize such 

threats, such as minimum capital standards for banks and FSOC’s ability to 

monitor and respond to a broad range of threats. However, their 

effectiveness will be greatly affected by how they are implemented and the 

vigorousness of regulators’ oversight efforts.
 

Page 40 GAO-13-195 Financial Regulatory Reform Status

Overall, the federal financial regulators have considerable work under

way to implement reforms that could improve the financial system in 

many of the ways that our 2009 framework envisions. However, much 

work remains to implement the Dodd-Frank Act reforms. As of December 

2012, regulators had finalized a little less than half of the provisions we 

identified as requiring rulemakings or other key actions. Moreover, 

completing the rulemaking process does not mean that reforms are fully 

implemented. Rather, it will take time—beyond the time spent on 

finalizing the rulemakings—for regulators and industry to adopt the 

reforms contained in the rulemakings, and even longer to determine 

whether the reforms have had their intended outcomes.

We provided a draft of this report to CFPB, CFTC, FDIC, the Federal 

Reserve, FHFA, FSOC, OCC, OFR, and SEC for their review and 

comment. The SEC Chairman provided written comments on our draft. 

The Chairman’s letter notes that implementation of the Dodd-Frank Act 

continues to be a major undertaking of SEC and other agencies. She also 

describes progress SEC has made in issuing required rules and studies.

These comments are reprinted in appendix II. We also obtained technical 

comments from CFPB, FDIC, FSOC, OCC, OFR, and SEC, which we 

have incorporated as appropriate. The Federal Reserve, FHFA, and 

CFTC did not provide comments.

We are sending copies of this report to CFPB, CFTC, FDIC, the Federal 

Reserve, FHFA, FSOC, OCC, OFR, and SEC, interested congressional 

committees, members, and others. This report will also be available at no 

charge on our website at http://www.gao.gov. 

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 II. 

A. Nicole Clowers

Director

Financial Markets and

Community Investment

Agency Comments 

and Our Evaluation
Appendix I: Objectives, Scope, and 

Methodology

Page 41 GAO-13-195 Financial Regulatory Reform Status

Our objectives in this report were to examine what is known about the (1) 

the overall status of U.S. financial regulatory reforms arising from the act, 

(2) challenges affecting the implementation of these reforms, and (3) 

areas that pose continued risk.

To address our first two objectives, we synthesized GAO’s body of work 

on the Dodd-Frank Wall Street Reform and Consumer Protection Act 

(Dodd-Frank Act) reforms and other financial regulatory reform efforts and 

challenges. We also reviewed and analyzed government, academic, and 

other studies on Dodd-Frank Act reforms and implementation. To 

examine regulators’ efforts to implement the provisions of the Dodd-Frank 

Act, we focused on eight major reform areas: capital requirements; 

resolution of financial institutions; proprietary trading; derivatives; 

consumer protection; mortgage reforms; expanded regulation of 

institutions and products; and investor protection. We also obtained and 

analyzed information from a database maintained by the law firm Davis 

Polk and Wardwell LLP that identified provisions of the Dodd Frank Act 

that require or authorize regulators to take actions, and tracks the status 

of regulators’ efforts to implement these provisions. We focused our 

analysis on provisions that required rulemakings or other key actions, but 

excluded other requirements, such as those to publish studies.

We took several steps to determine the number of provisions requiring 

regulators to issue rulemakings or take other key actions as well as the 

status of regulators’ efforts to implement the provisions. For example, 

after we identified provisions that we believed required regulators to issue 

rulemakings or take other key actions, we discussed these provisions with 

staff from eight agencies that are responsible for implementation of the 

majority of these efforts.1

 

1

The eight regulators were the Board of Governors of the Federal Reserve System 

(Federal Reserve), Bureau of Consumer Financial Protection(CFPB), Commodity Futures 

Trading Commission (CFTC), Federal Deposit Insurance Corporation (FDIC), Federal 

Housing Finance Agency (FHFA), Financial Stability Oversight Council (FSOC), Office of 

the Comptroller of the Currency (OCC), and Securities and Exchange Commission (SEC), 

In some cases, the law firm’s staff had identified 

provisions in the act as requiring separate actions, but which regulators 

saw as the same required action and had responded to the provisions by 

issuing a single rule. In other cases, regulators acknowledged that the act 

had called for separate actions but they had chosen to respond to these 

provisions in a single rule. For purposes of our report, we counted a 

provision as calling for a separate requirement if it appeared in our 

Appendix I: Objectives, Scope, and 

Methodology 
Appendix I: Objectives, Scope, and 

Methodology

Page 42 GAO-13-195 Financial Regulatory Reform Status

professional judgment to be a distinct requirement, regardless of how an 

agency combined or separated it for rulemaking purposes. In cases in 

which multiple regulators were required to implement one provision, we 

counted the provision as being finalized when at least one regulator had 

finalized a rule, and we counted a rule as having been proposed when at 

least one of the regulators had proposed a rule. Finally, our analysis 

focused on regulators’ progress implementing rulemakings and taking 

other key actions from the act’s passage through December 2012. Using 

different sources, assumptions, and judgments in compiling the list of 

provisions could result in different totals, and therefore the information we 

provide should not be taken as a definitive count of all actions required by 

the act.

During the course of our work, staff from several regulatory agencies 

noted that the private law firm’s data we used as the initial source to 

identify provisions of the Dodd-Frank Act that required rulemakings and 

other key actions by regulators overstates the number of required actions. 

This is because the database presents as separate requirements various 

Dodd-Frank Act provisions that regulators may view as one requirement 

with multiple elements and thus may be addressed through a single rule. 

However, because we have used various additional sources, including 

input from the relevant regulators, to compile the list of provisions 

requiring regulatory action, we maintain that the total we present in this 

report—which is significantly less than the total required actions reported 

by the original source—has been compiled using reasonable methods 

and treats requirements consistently across agencies. Moreover, we 

have disclosed the steps we took to compile the list of provisions and the 

limitations of our analysis.

For our first two objectives, we also interviewed officials from seven 

financial federal regulators—Board of Governors of the Federal Reserve 

System (Federal Reserve), Bureau of Consumer Financial Protection 

(CFPB), Commodity Futures Trading Commission (CFTC), Federal 

Deposit Insurance Corporation (FDIC), Federal Housing Finance Agency 

(FHFA), Office of the Comptroller of the Currency (OCC), and Securities 

and Exchange Commission (SEC)—as well as staff from the Financial 

Stability Oversight Council (FSOC) about their implementation of various 

Dodd-Frank reforms, challenges they are facing, and areas that continue 

to pose risk. In addition, we interviewed industry and consumer groups 

about these same issues and obtained the views from market observers 

and experts who have written about various Dodd-Frank Act reforms.
Appendix I: Objectives, Scope, and 

Methodology

Page 43 GAO-13-195 Financial Regulatory Reform Status

For the third objective, we compared key reforms (as identified for 

objective one) of the act against GAO’s 2009 framework for evaluating 

regulatory reform.2

We conducted this performance audit from June 2012 to January 2013 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.

We analyzed documentation and reports issued by 

federal regulators, market participants and observers, GAO, and 

congressional committees that identify areas of the U.S. financial system 

that undermine its stability and were not addressed by recent reforms. 

Finally, we interviewed regulatory officials, market participants, and 

observers to obtain their viewpoints about what areas, issues, or products 

could decrease the stability of the financial system that would benefit from 

additional or enhanced reforms, and any progress taken by the regulators 

to address these issues.

 

2

GAO-09-216. 
Appendix II: Comments from the Securities 

and Exchange Commission 

Page 44 GAO-13-195 Financial Regulatory Reform Status

Appendix II: Comments from the Securities 

and Exchange Commission
Appendix III: GAO Contact and Staff 

Acknowledgments

Page 45 GAO-13-195 Financial Regulatory Reform Status

A. Nicole Clowers, (202) 512-8678 or clowersa@gao.gov

In addition to the contact named above, Cody J. Goebel (Assistant 

Director), Anne A. Akin, William R. Chatlos, Camille K. Jennings, 

Waterankwa Kadzai, Jon D. Menaster, Marc W. Molino, Barbara M. 

Roesmann, and Jessica M. Sandler made significant contributions to this 

report.

Appendix III: GAO Contact and Staff 

Acknowledgments 

GAO Contact

Staff 

Acknowledgments
Related GAO Products

Page 46 GAO-13-195 Financial Regulatory Reform Status

Financial Regulatory Reform: Financial Crisis Losses and Potential 

Impacts of the Dodd-Frank Act. GAO-13-180. Washington, D.C.: 

January 16, 2013.

Dodd-Frank Act: Agencies’ Efforts to Analyze and Coordinate Their 

Rules. GAO-13-101. Washington, D.C.: December 20, 2012.

Community Banks and Credit Unions: Impact of the Dodd-Frank Act 

Depends Largely on Future Rule Makings. GAO-12-881. Washington, 

D.C.: September 13, 2012.

Financial Stability: New Council and Research Office Should Strengthen 

the Accountability and Transparency of Their Decisions. GAO-12-886. 

Washington, D.C.: September 11, 2012.

Municipal Securities: Options for Improving Continuing Disclosure. 

GAO-12-698. Washington, D.C.: July 19, 2012.

Bankruptcy: Agencies Continue Rulemakings for Clarifying Specific 

Provisions of Orderly Liquidation Authority. GAO-12-735. Washington, 

D.C.: July 12, 2012.

Credit Rating Agencies: Alternative Compensation Models for Nationally 

Recognized Statistical Rating Organizations. GAO-12-240. Washington, 

D.C.: January 18, 2012.

Bank Capital Requirements: Potential Effects of New Changes on Foreign 

Holding Companies and U.S. Banks Abroad. GAO-12-235. Washington, 

D.C.: January 17, 2012.

Dodd-Frank Act Regulations: Implementation Could Benefit from 

Additional Analyses and Coordination. GAO-12-151. Washington, D.C.: 

November 10, 2011.

Federal Reserve System: Opportunities Exist to Strengthen Policies and 

Processes for Managing Emergency Assistance. GAO-11-696, 

Washington, D.C.: July 21, 2011.

Bankruptcy: Complex Financial Institutions and International Coordination 

Pose Challenges. GAO-11-707. Washington, D.C.: July 19, 2011.

Related GAO Products
Related GAO Products

Page 47 GAO-13-195 Financial Regulatory Reform Status

Mortgage Reform: Potential Impacts in the Dodd-Frank Act on 

Homebuyers and the Mortgage Market. GAO-11-656. Washington, D.C.: 

July 19, 2011.

Dodd-Frank Act: Eleven Agencies’ Estimates of Resources for 

Implementing Regulatory Reform. GAO-11-808T. Washington, D.C.: 

July 14, 2011.

Proprietary Trading: Regulators Will Need More Comprehensive 

Information to Fully Monitor Compliance with New Restrictions When 

Implemented. GAO-11-529. Washington, D.C.: July 13, 2011.

Financial Assistance: Ongoing Challenges and Guiding Principles 

Related to Government Assistance for Private Sector Companies. 

GAO-10-719. Washington, D.C.: August 3, 2010.

Financial Markets Regulation: Financial Crisis Highlights Need to Improve 

Oversight of Leverage at Financial Institutions and across System. 

GAO-09-739. Washington, D.C.: July 22, 2009.

Systemic Risk: Regulatory Oversight and Recent Initiatives to Address 

Risk Posed by Credit Default Swaps. GAO-09-397T. Washington, D.C.: 

March 5, 2009.

Financial Regulation: A Framework for Crafting and Assessing Proposals 

to Modernize the Outdated U.S. Financial Regulatory System. 

GAO-09-216. Washington, D.C.: January 8, 2009.

(250681)
The Government Accountability Office, the audit, evaluation, and 

investigative arm of Congress, exists to support Congress in meeting its 

constitutional responsibilities and to help improve the performance and 

accountability of the federal government for the American people. GAO 

examines the use of public funds; evaluates federal programs and 

policies; and provides analyses, recommendations, and other assistance 

to help Congress make informed oversight, policy, and funding decisions. 

GAO’s commitment to good government is reflected in its core values of 

accountability, integrity, and reliability.

The fastest and easiest way to obtain copies of GAO documents at no 

cost is through GAO’s website (http://www.gao.gov). Each weekday 

afternoon, GAO posts on its website newly released reports, testimony, 

and correspondence. To have GAO e-mail you a list of newly posted 

products, go to http://www.gao.gov and select “E-mail Updates.”

The price of each GAO publication reflects GAO’s actual cost of 

production and distribution and depends on the number of pages in the 

publication and whether the publication is printed in color or black and 

white. Pricing and ordering information is posted on GAO’s website, 

http://www.gao.gov/ordering.htm. 

Place orders by calling (202) 512-6000, toll free (866) 801-7077, or 

TDD (202) 512-2537.

Orders may be paid for using American Express, Discover Card, 

MasterCard, Visa, check, or money order. Call for additional information.

Connect with GAO on Facebook, Flickr, Twitter, and YouTube. 

Subscribe to our RSS Feeds or E-mail Updates. Listen to our Podcasts. 

Visit GAO on the web at www.gao.gov. 

Contact:

Website: http://www.gao.gov/fraudnet/fraudnet.htm

E-mail: fraudnet@gao.gov

Automated answering system: (800) 424-5454 or (202) 512-7470

Katherine Siggerud, Managing Director, siggerudk@gao.gov, (202) 512-

4400, U.S. Government Accountability Office, 441 G Street NW, Room 

7125, Washington, DC 20548

Chuck Young, Managing Director, youngc1@gao.gov, (202) 512-4800

U.S. Government Accountability Office, 441 G Street NW, Room 7149 

Washington, DC 20548

GAO’s Mission

Obtaining Copies of 

GAO Reports and 

Testimony

Order by Phone

Connect with GAO

To Report Fraud, 

Waste, and Abuse in 

Federal Programs

Congressional 

Relations

Public Affairs

Please Print on Recycled Paper.