The financial regulatory system consists of numerous regulators with varying missions and functions. They promulgate regulations via federal rulemakings. In particular, the Dodd-Frank Act includes specific rulemaking and coordination requirements. In the banking industry, the specific regulatory configuration generally depends on the type of charter the banking institution chooses. Depository institution charter types include commercial banks, which originally focused on the banking needs of businesses but over time have broadened their services; savings associations (also known as thrifts), which include federal savings banks and certain state savings banks, and savings and loans and were originally created to serve the needs—particularly the mortgage needs—of those not served by commercial banks; and credit unions, which are member-owned cooperatives run by member- elected boards with a historical emphasis on serving people of modest means. All depository institutions that have federal deposit insurance have a federal prudential regulator, which generally may issue regulations and take enforcement actions against institutions within its jurisdiction. The prudential regulators are identified in table 1. Holding companies that own or control a bank or thrift are subject to Federal Reserve supervision. The Bank Holding Company Act of 1956 and the Home Owners’ Loan Act set forth the regulatory frameworks for bank holding companies and savings and loan holding companies, respectively. The Dodd-Frank Act made the Federal Reserve the regulator of savings and loan holding companies and amended the Home Owners’ Loan Act and the Bank Holding Company Act to create certain similar requirements for bank and savings and loan holding companies. The securities and futures markets 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 regulates the securities markets, including participants such as securities exchanges, broker-dealers, investment companies, and certain investment advisers and municipal advisors. SEC’s mission is to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation. SEC also oversees self-regulatory organizations—including securities exchanges, clearing agencies, and the Financial Industry Regulatory Authority—that have responsibility for overseeing securities markets and their members; establishing standards under which their members conduct business; monitoring business conduct; and bringing disciplinary actions against members for violating applicable federal statutes, SEC’s rules, and their own rules. CFTC is the primary regulator for futures markets, including futures exchanges and intermediaries, such as futures commission merchants. CFTC’s mission is to protect market users and the public from fraud, manipulation, abusive practices, and systemic risk related to derivatives subject to the Commodity Exchange Act, and to foster open, competitive, and financially sound futures markets. CFTC oversees the registration of intermediaries and relies on self-regulatory organizations, including the futures exchanges and the National Futures Association, to establish and enforce rules governing member behavior. CFTC and SEC jointly regulate security futures, which generally refers to futures on single securities and narrow-based security indexes. In addition, Title VII of the Dodd-Frank Act expands regulatory responsibilities for CFTC and SEC by establishing a new regulatory framework for over-the-counter swaps. The act authorizes CFTC to regulate swaps and SEC to regulate security-based swaps with the goals of reducing risk, increasing transparency, and promoting market integrity in the financial system. CFTC and SEC share authority over mixed swaps—that is, security-based swaps that have a commodity component. The Dodd-Frank Act transferred consumer protection oversight and other authorities over certain consumer financial protection laws from multiple federal regulators to CFPB, creating a single federal entity to, among other things, help ensure consistent enforcement of federal consumer financial laws. The Dodd-Frank Act charged CFPB with the following responsibilities, among others: ensuring that consumers are provided with timely and understandable information to make responsible decisions about financial transactions; ensuring that consumers are protected from unfair, deceptive, or abusive acts and practices and from discrimination; monitoring compliance with federal consumer financial law and taking appropriate enforcement action to address violations; identifying and addressing outdated, unnecessary, or unduly burdensome regulations; ensuring that federal consumer financial law is enforced consistently, in order to promote fair competition; ensuring that markets for consumer financial products and services operate transparently and efficiently to facilitate access and innovation; and conducting financial education programs. Furthermore, the Dodd-Frank Act gave CFPB supervisory authority over certain nondepository institutions, including certain kinds of mortgage market participants, private student loan lenders, and payday lenders. Several regulatory analyses may apply to independent regulators, including the financial regulators. The regulators are subject to compliance with various requirements as part of their rulemakings, such as those in PRA; RFA, as amended by the Small Business Regulatory Enforcement Fairness Act of 1996; and the Congressional Review Act. PRA requires federal agencies to (1) seek public comment on proposed collections and (2) submit proposed collections for review and approval by OMB. According to the Office of Information and Regulatory Affairs’ PRA guidance, these actions must occur before federal agencies require or request information from the public. RFA requires that federal agencies consider the impact of certain regulations they issue on small entities and, in some cases, alternatives to lessen the regulatory burden on these entities. In some cases, PRA and RFA also require agencies, including financial regulators, to assess various effects and costs, respectively, of their rules. However, RFA, like PRA, does not require the agencies to conduct formal benefit and cost analyses. The Small Business Regulatory Enforcement Fairness Act of 1996, which amended RFA, generally includes judicial review of compliance with certain provisions of RFA and requires agencies, including financial regulators, to develop one or more small entity compliance guides for each final rule or group of related final rules for which the agency must prepare a regulatory flexibility analysis. In addition, the act requires CFPB to convene a small business review panel, when preparing an initial regulatory flexibility analysis in connection with a proposed rule, to gather recommendations and advice from representatives of small business entities about any projected increase in the cost of credit for small entities and any significant alternatives to the proposed rule. Under the Congressional Review Act, before rules can take effect, agencies (including financial regulators) must submit their rules to Congress and the Comptroller General, and rules deemed major by OMB generally may not become effective until 60 days after the rules are submitted. In addition to these requirements, authorizing or other statutes require certain financial regulators to consider specific benefits, costs, and effects of their rulemakings (see table 2). In contrast, E.O. 12,866, supplemented by E.O. 13,563, requires executive agencies (which do not include independent regulators such as financial regulators), to the extent permitted by law and where applicable, to provide more formal cost-benefit analyses that (1) assess costs and benefits of available regulatory alternatives and (2) include both quantifiable and qualitative measures of benefits and costs in their analysis, recognizing that some costs and benefits are difficult to quantify. Such analysis, according to OMB, can enable an agency to learn if the benefits of a rule are likely to justify the costs and discover which possible alternatives would yield the greatest net benefit or be most cost-effective. In 2003, OMB issued Circular A-4 to provide guidance to executive agencies on developing regulatory analysis as required by E.O. 12,866. The circular defines good regulatory analysis as including a statement of the need for the proposed regulation, an assessment of alternatives, and an evaluation of the costs and benefits of the proposed regulation and the alternatives. It also standardizes the way costs and benefits of regulatory actions should be measured and reported. FSOC and the Department of the Treasury (Treasury), which are not financial regulators, are subject to E.O. 12,866 and Circular A-4. However, as we have reported, some independent agencies consult Circular A-4. As we have noted in prior reports, effective coordination can help regulators minimize or eliminate staff and industry burden, administrative costs, conflicting regulations, unintended consequences, and uncertainty among consumers and markets. The Dodd-Frank Act imposes interagency coordination or consultation requirements and responsibilities on regulators or in connection with certain rules, including the following examples: Under Title VII, SEC and CFTC must coordinate and consult with each other and with prudential regulators (for the purposes of Title VII, these regulators are the Federal Reserve, OCC, FDIC, Farm Credit Administration, and Federal Housing Finance Agency), to the extent possible, before starting a rulemaking or issuing an order on swaps, security-based swaps, swap entities, or security-based swap entities. This requirement is designed to ensure regulatory consistency and comparability across the rules or orders, to the extent possible. Title VII also directs CFTC, SEC, and the prudential regulators, as appropriate, to coordinate with foreign regulators on establishing consistent international standards on the regulation of swaps, security-based swaps, swap entities, and security-based swap entities. In addition, the Dodd-Frank Act requires SEC and CFTC, in consultation with the Federal Reserve, to jointly adopt certain rules under Title VII, and if Title VII requires CFTC and SEC to issue joint regulations to implement a provision, any guidance on or interpretation of the provision is effective only if issued jointly and after consultation with the Federal Reserve. Under section 1022, before proposing a rule and during the comment process, CFPB must consult with the appropriate prudential regulators or other federal agencies on consistency with prudential, market, or systemic objectives administered by such agencies. We found that for rules that were issued and became effective between July 23, 2015, and July 22, 2016, agencies reported conducting PRA and RFA analysis where required. In addition, although not required to do so, financial regulators told us that they generally follow OMB’s guidance for developing regulatory analysis (Circular A-4). We found that the agencies included most of the key elements of OMB’s guidance in their analyses for select major rules during this review period. We recommended in our December 2011 report that federal financial regulators more fully incorporate OMB’s regulatory guidance into their rulemaking polices. Of the 30 Dodd-Frank Act rules within our scope, the agencies reported conducting regulatory analysis for PRA on 12 rules and conducted a regulatory analysis or provided a certification that such an analysis was not needed under RFA for 21 rules as part of their rulemaking process. These rules were issued individually or jointly by CFTC, CFPB, FDIC, the Federal Reserve, OCC, and SEC. (See app. II for a list of the regulations within the scope of our review.) In examining the regulatory analyses for the 12 rules, we found that the agencies reported conducting the regulatory analysis pursuant to PRA when required—that is, the agencies are required to minimize the paperwork burden of their rulemakings and evaluate whether a proposed collection is necessary for the proper performance of the functions of the agency. PRA analysis on all of the 12 rules included a discussion of the analysis the agencies performed and provided estimates of the paperwork burden on entities. For instance, for the joint rule on the registration and supervision of appraisal management companies, the regulators provided estimates on the total number of states and appraisal management companies affected and estimated total burden hours for reporting and recordkeeping requirements for these entities. In another rule, CFPB determined that permitting electronic filing of reports would result in a minimal one-time burden associated with a new method of submission but it estimated savings over time due to the reduction of paper filings each year. The rule allows land developers to choose whether to submit certain filings, such as annual reports, either by paper or via electronic means. For another rule on business conduct standards for security-based swap dealers and participants, SEC performed a PRA analysis in its proposed rule and updated certain estimates for security-based swap market participants and other entities for the final rule to reflect the most recent data available. For the remaining 18 rules, the agencies determined that they were not required to conduct the regulatory analyses pursuant to PRA or that PRA was not applicable. In some cases, they determined that they were not required to conduct regulatory analyses pursuant to PRA because they determined no new collection of information would be required. For instance, CFTC’s rule on trade options stated that for PRA, CFTC determined that the final rule would not impose any new information collection requirements that require OMB’s approval under PRA. In other cases, the agencies determined that the PRA was not applicable. For example, the Federal Reserve’s rule on unfair or deceptive acts or practices stated that the final rule contains no requirements subject to the PRA. Under the RFA, when an agency proposes a rule that would have a significant economic impact on a substantial number of small entities, the rule must be accompanied by an impact analysis, known as an initial regulatory flexibility analysis (IRFA) when it is published for public comment. The agency must publish a final regulatory flexibility analysis (FRFA) with the final rule. Alternatively, in the appropriate circumstances, an agency may certify that its rule will not have a significant economic impact on a substantial number of small entities. The certification must be published in the Federal Register “along with a statement providing the factual basis for such certification.” In one instance, a regulator—CFPB—determined that the final rule on integrated mortgage disclosures would have a significant impact on a substantial number of small entities. It conducted the regulatory flexibility analysis and estimated the number of affected entities in certain mortgage transactions and the benefits and costs to small entities. For 6 rules, the regulators conducted a FRFA and concluded that the rule would not have a significant economic impact on a substantial number of small entities. For example, the Federal Reserve, in a rule that established minimum margin and capital requirements for certain swap entities, considered the potential impact on small entities in accordance with a FRFA, and based on its analysis, believed that the rule would not have a significant economic impact on a substantial number of small entities. For 10 rules, the regulators stated that RFA was not applicable. For example, CFPB stated in its rule amending certain filing requirements under the Interstate Land Sales Full Disclosure Act that because no notice of proposed rulemaking is required, RFA does not require an initial or final regulatory flexibility analysis. In another example, FDIC determined that its rule on assessments relates directly to the rates imposed on insured depository institutions for deposit insurance. For this reason, it determined that the requirements of RFA do not apply. FDIC explained that certain types of rules, such as rules of particular applicability relating to rates or corporate or financial structures, or practices relating to such rates or structures, are expressly excluded from the definition of the term ‘‘rule’’ for purposes of RFA. In the remaining cases, the regulators certified that the regulations would not have a significant economic impact on a substantial number of small entities per section 605(b) of the RFA. In doing so, each regulator provided a basis supporting its certification. For example, SEC’s rule on business conduct standards for swap dealers and participants noted that because (1) large financial institutions generally were the entities engaged in the dealing activity involving security-based swaps, and (2) major security-based swap participants were not small entities, its security-based-swap entity registration rules and forms, as adopted, would not have a significant economic impact on a substantial number of small entities for purposes of RFA. Finally, of the 30 regulations that were issued and became effective between July 23, 2015, and July 22, 2016, the agencies identified 9 as being major rules. Pursuant to the Congressional Review Act, a major rule is one that results in or is likely to result in an annual impact on the economy of $100 million or more, a major increase in costs or prices, or significant adverse effects on competition, employment, investment, productivity, innovation, or on the ability of U.S.-based enterprises to compete with foreign-based enterprises in domestic or export markets. Specifically, CFTC issued 1 major rule; CFPB issued 1 major rule; Federal Deposit Insurance Corporation issued 1 major rule; the Federal Reserve issued 1 major rule; SEC issued 4 major rules; and 1 major rule was issued jointly (Farm Credit Administration, FDIC, Federal Housing Finance Agency, Federal Reserve, and OCC). Independent federal financial regulators are not required to follow OMB’s Circular A-4 when developing regulations, but they told us that they try to follow this guidance in principle or spirit. Regulators generally included the key elements of OMB’s guidance in their regulatory analyses for these major rules. To assess the extent to which the regulators follow Circular A-4, we examined 5 major rules (see table 3 for a description of these rules). Specifically, we examined whether the regulators (1) identified the problem to be addressed by the regulation; (2) established the baseline for analysis; (3) considered alternatives reflecting the range of statutory discretion; and (4) assessed the costs and benefits of the regulation. We found that all five rules we reviewed were consistent with OMB Circular A-4, which states that a rule should clearly identify the specific problem that the proposed regulatory action is intended to address. For example, SEC stated in its rule on pay ratio disclosure that current disclosure rules required registrants to disclose compensation information for only certain employees in their SEC filings; as a result, shareholders cannot calculate a company-specific metric that they can use to evaluate the chief executive officer’s compensation within the context of their own company. As another example, FDIC noted in its rule on assessments the need to reach the minimum reserve ratio to strengthen the fund, reduce the risk of the banking industry facing unexpected, large increases in assessment rates in a period of stress, and maintain stable and predictable bank assessments. Also, CFTC stated in its rule on margin requirements for uncleared swaps that the rule was intended to implement a specific provision of the Commodity Exchange Act, as amended by Title VII of the Dodd-Frank Act. As CFTC noted in the rule, Title VII intended to establish a comprehensive regulatory framework to reduce risk, increase transparency, and promote market integrity in the derivatives market. In addition, all five rules identified the baseline for analysis. OMB Circular A-4 states that the baseline should be the best assessment of the way the world would look absent the proposed action. For example, CFTC stated in its rule on margin requirements for uncleared swaps that the baseline against which the costs and benefits associated with this rule will be compared is the uncleared swaps markets as it existed at the time the rule was finalized. SEC stated in its rule on pay ratio disclosure that the baseline is the current state of the market without a requirement for registrants to disclose pay ratio information. Similarly, CFPB stated in its rule on integrated mortgage disclosures that the baseline considers economic attributes of the mortgage market and the existing regulatory structure. The regulators also provided alternative approaches to the proposed rules implementing the relevant provision of the Dodd-Frank Act and solicited comments. OMB Circular A-4 states that good regulatory analysis is designed to inform the public and other parts of the government of the effects of alternative actions. We found that all five rules that we assessed provided alternative approaches to the proposed rules. The agencies also asked for and received public comments, including possible alternatives to proposed requirements. For instance, in the joint rule on margin and capital requirements for covered swap entities, the prudential regulators identified and considered a number of alternatives raised by commenters and provided the rationale in their decision to a suggested approach. SEC stated in its rule on pay ratio disclosure that after considering all of the comments received on the proposed rule—and in particular, after considering specific suggestions from commenters on alternatives that could help to mitigate compliance costs and practical difficulties associated with the proposed rule—it was adopting a number of revisions to the final rule. OMB Circular A-4 states that quantifying costs and benefits allows regulators to evaluate different regulatory options using a common measure. Additionally, OMB Circular A-4 recognizes that some important costs and benefits may be inherently too difficult to quantify given current data and methods and recommends a careful evaluation of qualitative costs and benefits. In prior work, we have noted some of the challenges to quantifying costs and benefits. For example, in our 2014 report, we found that federal financial regulators were constrained by several factors such as limited data or data unavailability and difficulties modeling and quantifying costs and benefits. However, we also found that by drawing on several sources, such as public comments on proposed rulemakings or data from other regulators, regulators are able to more effectively consider the costs and benefits of the rulemakings. As shown in the following examples, the regulators generally quantified some costs in all five of their respective rules and in four instances they discussed some costs qualitatively. The preamble to CFTC’s final rule on margin requirements for uncleared swaps stated it used industry data to construct its own estimates of costs, but noted that there were a number of challenges in conducting quantitative analysis of the costs associated with the rule. As a result, CFTC stated that the discussion of the costs and benefits is largely qualitative in nature since administrative costs are difficult to quantify. For example, the preamble stated that the higher degree of harmonization between various regulators and jurisdictions in the final rule should result in lower administrative costs. Additionally, CFTC stated that longer lead times for industry to build compliance systems provided in the final rule will result in less operational error and costs. The joint rule on margin and capital requirements for uncleared swaps estimated the annual cost associated with initial margin requirements that will be required of U.S. swap entities and their counterparties once the requirements are fully implemented to range from $672 million to roughly $46 billion, depending on the specific initial margin estimate and incremental funding costs that is used to compute the estimate. The agencies noted the difficulty of estimating the costs associated with providing initial margin with any precision due to differences in marginal funding costs across different types of entities and over time, among other things. SEC’s rule on pay ratio disclosure provided both quantitative and qualitative costs. SEC discussed direct compliance costs paid by registrants that are subject to the pay ratio disclosure. For example, SEC estimated that the average initial cost of compliance for a registrant with foreign operations is expected to be approximately $700,000 and for a registrant with U.S.-based operation only is expected to be approximately $150,000. In its pay ratio disclosure rule, SEC allows a company, in identifying the median employee, to use a cost-of-living adjustment for employees living in a jurisdiction other than the jurisdiction in which the chief executive officer resides. Thus, where a company has employees in countries whose cost-of- living differs from the cost-of-living in the chief executive officer’s country of residence, the cost-of-living adjustment may have an effect on the determination of the median employee and on the calculation of the pay ratio. SEC noted that it was limited in its ability to quantify the impact of the adjustment on the pay ratio calculation by lack of data on the countries where employees are located, the actual distribution of employee pay and the specific cost-of-living measure used. SEC stated that it qualitatively analyzed the main factors that may contribute to more significant effects of the cost-of-living adjustment on the determination of the median employee compensation and on the calculation of the pay ratio. It found that the effect of the cost-of-living adjustment could be potentially larger for registrants with a larger percentage of employees outside the chief executive officer’s country of residence and for registrants with employees in countries with a cost-of-living that differs significantly from the chief executive officer’s country of residence. In addition, two of the five rules quantified some benefits and all of the rules included some qualitative information on benefits, such as their nature, timing, likelihood, location, and distribution. In one example, CFPB quantified some benefits in connection with its integrated disclosure rule. For example, CFPB estimated that the rule could result in savings of $130 million per year for employee time saved for mortgage transactions and stated that most of these savings are likely to be passed on to consumers. FDIC’s assessment rule also quantified some benefits. FDIC stated that it will collect approximately $10 billion in surcharges and award approximately $1 billion in credits to small banks, although actual amounts will vary from these estimates. The three remaining rules did not quantify benefits and noted data and other limitations to not doing so. The five rules provided a discussion of some qualitative benefits. FDIC’s rule on assessments stated that imposing surcharges on assessments so that the deposit insurance fund reaches its target reserve ratio promptly strengthens the fund more quickly so that it can better withstand an unanticipated spike in losses from bank failures or the failure of one or more large banks. FDIC stated that reaching the target ratio early also reduces the risk of the banking industry facing unexpected, large increases in assessment rates in a period of stress. In another example, SEC stated in its rule on pay ratio disclosures that providing additional executive compensation information to shareholders provides new data points that shareholders may find relevant and useful when exercising their certain voting rights. However, SEC also stated that it could not quantify in monetary terms the benefit to shareholders. SEC stated that pay ratio disclosure is not tied to an immediate economic transaction, such as a sale of a security, and that the pay ratio disclosure is but one data point among many considerations that shareholders might find relevant when exercising their say-on-pay votes. The agencies reported coordinating as required or voluntarily on 19 of the 30 regulations that became effective between July 23, 2015, and July 22, 2016. The Dodd-Frank Act stipulated coordination for 17 regulations, and agencies reported coordinating on these rules. For example, in its rule on business conduct standards for security-based swap dealers and major security-based swap participants, SEC reported consulting and coordinating with CFTC and the prudential regulators in accordance with the consultation mandate in the Dodd-Frank Act. For 2 additional rules, the Dodd-Frank Act did not stipulate coordination, but the rules were jointly issued by two or more regulators, and thus, inherently required coordination. For most of the other 11 rules, agency officials told us that they did not voluntarily coordinate because the rules were technical amendments or focused on areas solely within the agency’s purview. For example, CFPB explained that it did not coordinate on several of its rules because they were threshold adjustments that were mechanical in nature and often tied to the Consumer Price Index. Similarly, FDIC did not coordinate on its rule on assessments because FDIC is solely responsible for deposit insurance assessments, so this is not an area promulgated in coordination with other entities. Appendix III provides a complete list of rulemakings, along with an explanation of whether coordination was required and the nature of any coordination. Of the 19 rules that we identified as having interagency coordination, we reviewed 3 rules in depth (see table 4). Specifically, we examined when, how, and to what extent federal financial regulators coordinated on the CFTC’s and the prudential regulators’ respective rules on margin requirements for uncleared swaps, as well as CFPB’s rule on integrated mortgage disclosures. For the margin requirements for uncleared swaps rules, we also examined the efforts taken by the prudential regulators and CFTC to harmonize their respective versions of the rule. According to regulators, most coordination for the rulemakings occurred throughout the rulemaking process. Agencies described coordinating through regularly scheduled meetings and conference calls, as well as through e-mail, telephone conversations, and sharing copies of drafts for comment. In developing their respective rules on margin requirements for uncleared swaps, staff from the prudential regulators and CFTC engaged in coordination domestically, staff from the banking regulators and CFTC engaged in coordination internationally. Staff from the banking regulators and CFTC said that throughout the rulemaking process, regulators scheduled recurring interagency meetings to coordinate their rules and engaged in additional coordination as needed. Staff from the banking regulators and CFTC also said that before proposing their respective rules, they began holding regular meetings to discuss their ideas. According to staff from the regulators, these meetings, which were typically held at least biweekly, continued throughout the rulemaking process, although regulatory staff from one agency said that the regulators would meet more frequently if there were issues that required more discussion. Federal Reserve staff created agendas for these recurring meetings. These agendas included discussion items such as revisions for specific sections and particular comments for the agencies to consider. Staff from CFTC and one banking regulator said that they continue to have biweekly conference calls to discuss the implementation of the rules and issues that may arise regarding them. According to staff from CFTC and the banking regulators, their efforts to coordinate throughout the rulemaking process led to rules that are largely harmonized, particularly in key areas such as the initial and variation margin requirements, the timing for posting margin, and the parties that are required to post the margin. CFTC staff said that one of the goals of coordinating with the other regulators was to harmonize the rules to the extent possible and avoid the potential for regulatory arbitrage. Staff from CFTC and the banking regulators noted that the coordination process allowed them to resolve several areas where they had differences. For example, CFTC staff said that initially the prudential regulators and CFTC were considering setting different thresholds for the size of an entity that would be subject to the rules. However, they said that CFTC conducted an analysis that helped the regulators achieve a consensus on the appropriate threshold. According to regulators, another area where the prudential regulators and CFTC initially differed was in their proposed margin requirements for the treatment of uncleared cross-border swap transactions—transactions involving swap entities operating in a foreign jurisdiction or organized as U.S. branches or agencies of foreign banks. In their respective final rules, CFTC and the prudential regulators came to a similar position regarding whether to allow entities to comply with comparable margin requirements in a foreign jurisdiction. The prudential regulators’ rule permits certain swap entities to comply with a foreign regulatory framework for non- cleared swaps if the regulators jointly determine that the foreign regulatory framework is comparable to the regulators’ rule. Similarly, CFTC allows entities, under certain circumstances, to rely on compliance with a foreign jurisdiction’s margin requirements if CFTC determines they are comparable to CFTC’s. OCC staff noted that through the coordination process CFTC came to this determination, in part because much of the international swap dealer community is subject to the prudential regulators’ rule rather than CFTC’s rule. While regulators noted that coordination helped them achieve comparability between the final rules in many key areas, they identified one area where differences remain—that of margin requirements for uncleared swaps with affiliated entities (interaffiliate swaps). Both final rules require swap entities covered by the rules to collect and post variation margin for uncleared swaps with affiliates on the same basis as for nonaffiliated counterparties. However, the final rules are different with respect to the collection of initial margin for interaffiliate transactions. While the prudential regulators’ rule does require a swap entity to collect initial margin from an affiliate, subject to a threshold amount, CFTC generally does not impose a similar requirement to collect initial margin from an affiliate (although it stipulates such swaps must be subject to a centralized risk-management program that is designed to monitor and to manage the risks associated with such transactions). CFTC’s Chairman said in his statement of record that interaffiliate transactions are transactions within the consolidated entity, and not with a third party. As such, they do not increase the overall risk exposure of the consolidated entity. In its final rule, CFTC noted that, among other contributing factors, it considered the difference in mission and overall regulatory framework between the prudential regulators and CFTC in determining its initial margin requirement for interaffiliate transactions. CFTC and two banking regulators’ staff noted that it was unclear at this time as to whether this difference in the final rules was going to affect interaffiliate transactions. Two regulators said the regulators will need to monitor potential effects as the margin rules are implemented. However, in finalizing CFTC’s rule, one dissenting Commissioner said in her statement of record that CFTC’s treatment of interaffiliate initial margin places the swap dealers CFTC regulates and their customers at unnecessary risk in times of financial stress. The Dodd-Frank Act directs CFTC, SEC, and the prudential regulators to consult and coordinate, as appropriate, with foreign regulatory authorities on the establishment of consistent international standards for regulating swaps. Staff from CFTC, SEC, and several of the prudential regulators participated on the international working group that helped develop the international framework to regulate uncleared swaps, which was issued in September 2013 by the Basel Committee on Banking Supervision and the Board of the International Organization of Securities Commissions. According to CFTC staff, the working group coordinated on issues such as the logistics for the collection of margin and how to treat transactions in emerging markets. Staff from two banking regulators and CFTC said that after the international standards were established, the regulators coordinated through their standing, biweekly meetings to reconcile their initial proposed rules with the international framework. With respect to the integrated mortgage disclosure rule, CFPB followed its formal consultation process for working with agencies to develop Dodd-Frank Act rules. As previously discussed, section 1022 of the Dodd- Frank Act requires CFPB to consult with the appropriate prudential regulators or other federal agencies as part of the rulemaking process. In March 2012, CFPB developed internal guidelines that outline the minimum steps that it expects staff to follow during the consultation process. The guidelines state that while the process may vary depending on factors such as the nature, complexity, and deadlines of rulemakings, the process typically includes an opportunity for relevant agencies to coordinate with CFPB before it proposes its rule, after CFPB receives comments on its proposal, and before the final rule is issued. This coordination includes in-person briefings and solicitations for input on CFPB’s approach to the particular rule. In developing the integrated mortgage disclosure rule, CFPB staff said that they provided notification of a desire to consult on the rule to the prudential regulators, offered four briefings during the rulemaking process, and held other consultations as needed in accordance with its consultation process guidelines. While developing the proposed and final rules, CFPB staff provided outlines to the prudential regulators for their consultation and feedback. According to CFPB staff, when agencies provided comments in the proposal stage, CFPB staff sometimes updated the proposed rule to include a request for comment on their suggestions. For example, staff said that when FDIC suggested that CFPB improve the disclosures on annual percentage rates, CFPB included a request for comment in the proposed rule on ways to improve the disclosure. Staff from CFPB and the prudential regulators said that the prudential regulators participated in CFPB’s consultation process. For example, Federal Reserve staff said they participated in several interagency consultation meetings and calls that occurred throughout the proposed and final rulemakings. They said that CFPB staff consulted with them prior to proposing the rule and during the comment process on the rule’s consistency with prudential, market, and systemic objectives administered by the Federal Reserve. In addition, Federal Reserve staff provided informal feedback to enhance the clarity of the rule and facilitate compliance. FDIC staff described CFPB’s rulemaking process as flexible, allowing FDIC staff the opportunity to participate and understand CFPB’s rulemaking process, putting FDIC staff in a better position to explain the rule to FDIC-supervised banks. Financial regulators continue to implement reforms pursuant to the Dodd- Frank Act, but a number of factors make the full impact of the act uncertain. In particular, while many rules have been finalized, several rules have not been finalized or have not yet been started. As of December 2016, regulators had issued final rules for over 75 percent of the 236 provisions of the act that we are monitoring. When the act’s reforms are fully implemented, it can take time for the financial services industry to comply with the new regulations, which means additional time is needed to measure the impact of the rules. Moreover, isolating the Dodd-Frank Act’s effect on the financial marketplace is difficult. Many other factors that can affect the financial marketplace, such as monetary policy, could have an even greater impact than the act. Recognizing these limitations and difficulties, we developed an approach to analyze current data and trends that might indicate some of the Dodd- Frank Act’s initial impacts. First, using data through the second quarter of 2016, we updated the indicators developed in our December 2012 and 2015 reports to monitor changes in certain characteristics of bank SIFIs, which are subject to enhanced prudential standards and oversight under the act. Second, using data through the second quarter of 2016, we updated indicators of designated nonbanks that we developed in our December 2015 report that parallel our bank SIFI indicators. Third, using data through the second quarter of 2016, we updated indicators developed in our December 2013 report to monitor the extent to which certain of the act’s swap reforms are consistent with the act’s goals of reducing risk. These analyses have limitations, which we discuss in the following sections. According to the legislative history, the Dodd-Frank Act contains provisions intended to reduce the risk of failure of a large, complex financial institution and the damage that such a failure could do to the economy. Such provisions include (1) authorizing FSOC to designate a nonbank financial company for Federal Reserve supervision if FSOC determines its material distress or financial activities could pose a threat to U.S. financial stability and (2) directing the Federal Reserve to impose enhanced prudential standards on bank holding companies with $50 billion or more in total consolidated assets (bank SIFI) and nonbank financial companies designated by FSOC (designated nonbanks). The Federal Reserve has finalized rules imposing enhanced prudential standards on bank SIFIs, including capital, leverage, and liquidity requirements, and rules that require these firms to conduct resolution planning and stress testing, as well as proposed other rules. (See app. IV for a summary of provisions related to SIFIs and their rulemaking status.) As we first reported in December 2012, the Dodd-Frank Act and its implementing rules may result in adjustments to the size, interconnectedness, complexity, leverage, or liquidity of bank SIFIs over time. We updated the indicators we developed in our December 2012 and December 2015 reports to monitor changes in some of the characteristics of bank SIFIs. The size, interconnectedness, and complexity indicators reflect the potential for financial distress or activities of a single bank SIFI to affect the financial system and economy (spillover effects). The leverage and liquidity indicators reflect a SIFI’s resilience to shocks or its vulnerability to financial distress. It is important to note however, that these indicators have limitations. For example, the indicators do not identify causal links between changes in SIFI characteristics and the act. Rather, the indicators track changes in the size, interconnectedness, complexity, leverage, and liquidity of SIFIs since the passage of the act to examine if the changes have been consistent with the goals of the act. However, other factors—including international banking standards agreed upon by the Basel Committee on Banking Supervision (Basel Committee) and monetary policy actions— also affect bank holding companies and, thus, the indicators. These factors may have a greater effect than the Dodd-Frank Act on SIFIs. Furthermore, because several rules implementing provisions related to SIFIs have not been finalized or have not yet been started, our indicators include the effects of these rules only insofar as SIFIs have modified their behavior in response to issued rules or in anticipation of expected rules (see app. IV). In this regard, our indicators provide baselines against which to compare future trends. See appendix V for additional limitations of our indicators. Table 5 summarizes the changes in our bank SIFI indicators from the second or third quarter of 2010 through the second quarter of 2016 (see app. V for more information). For example: Changes in some size and complexity indicators are consistent with increased potential spillover effects for large bank SIFIs (which we define as bank holding companies with $500 billion or more in assets), while changes in interconnectedness and other size and complexity indicators are consistent with decreased or no change in potential spillover effects for large bank SIFIs. Changes in size, interconnectedness, and complexity indicators are consistent with decreased or no change in potential spillover effects for other bank SIFIs (which we define as bank holding companies with at least $50 billion but less than $500 billion in assets). Changes in all of our leverage and liquidity indicators are consistent with increased resilience for both large bank SIFIs and for other bank SIFIs. We updated indicators associated with size, interconnectedness, leverage, and liquidity for institutions whose material financial distress or activities FSOC determines could pose a threat to U.S. financial stability and therefore should be subject to Federal Reserve supervision and enhanced prudential standards. During 2013 and 2014, FSOC designated four nonbank financial companies for Federal Reserve supervision pursuant to a determination that their material financial distress could pose a threat to U.S. financial stability. These included the American International Group, Inc. (AIG) in July 2013, General Electric Capital Corporation, Inc. (GECC) in July 2013, Prudential Financial, Inc. (Prudential) in September 2013, and MetLife, Inc. (MetLife) in December 2014. FSOC determined that each of these institutions was predominately engaged in financial activities (that is, at least 85 percent of their revenues were derived from, or more than 85 percent of their assets were related to, activities that were financial in nature). According to FSOC, at the time of the designations, AIG was the third-largest insurance company in the United States and one of the largest insurers in the world; GECC was one of the largest holding companies in the United States and a significant source of credit to commercial and consumer customers; Prudential was one of the largest financial services companies in the United States providing a wide array of financial services, including group and individual life insurance, annuities, retirement-related products and services, and asset management; and MetLife was the largest publicly traded U.S. insurance organization and one of the largest financial services companies in the United States. However, in March 2016, the U.S. District Court for the District of Columbia invalidated FSOC’s designation of MetLife. Then, in June 2016, after the reorganization of GECC, FSOC rescinded the nonbank’s designation noting that divestures and organizational changes significantly reduced the potential for any material financial distress to threaten financial stability. As we first reported in December 2012, the Dodd-Frank Act and its implementing rules may result in adjustments to size, interconnectedness, leverage, and liquidity characteristics of designated nonbanks over time. Size and interconnectedness reflect the potential for the financial distress of a single designated nonbank to affect the financial system and economy, while leverage and liquidity reflect a designated nonbank’s resilience to shocks or its vulnerability to financial distress. In our December 2015 report, we developed the following indicators based on the characteristics of companies that FSOC reviews as part of its process for designating nonbanks: Size. Our indicator of size is total consolidated assets. Interconnectedness. Our indicators of interconnectedness are gross notional amounts of credit default swaps outstanding for which the designated nonbank is the reference entity and total debt outstanding (excluding deposit liabilities). Leverage. Our indicator of leverage is total equity as a percentage of total assets, except separate accounts. Liquidity. Our indicator of liquidity is short-term debt (excluding deposit liabilities) as a percentage of total assets, except separate accounts. We calculated each indicator, for each quarter, for each of the currently designated nonbanks from the second quarter of 2012 to the second quarter of 2016. We also calculated the medians of each indicator for publicly traded banks and insurance companies with total consolidated assets of $50 billion or more to provide a frame of reference. Like our indicators for bank SIFIs, our indicators for designated nonbanks have some limitations. For example, the indicators do not identify causal links between changes in designated nonbanks’ characteristics and the Dodd-Frank Act. Rather, the indicators track changes in the size, interconnectedness, leverage, and liquidity of designated nonbanks since the passage of the act to examine if the changes have been consistent with the goals of the act. However, other factors, such as capital standards for large, internationally active insurance companies, may also affect designated nonbanks and, thus, the indicators. Furthermore, to the extent that a number of rules implementing provisions related to designated nonbanks have not yet been finalized, our indicators include the effects of these rules only insofar as designated nonbanks have changed their behavior in anticipation of expected rules. In this regard, our indicators provide baselines against which to compare future trends. Figure 1 shows the indicators from the second quarter of 2012 through the second quarter 2016. In November 2011 and October 2012, the Federal Reserve issued specific rules requiring designated nonbank financial companies to conduct resolution planning and stress testing, respectively, and in June 2016 proposed rules that would establish corporate governance, risk-management, and liquidity risk-management standards for these firms. Thus, the current values of our indicators are baselines against which to compare future trends as more rules for designated nonbanks are implemented. Our indicators allow for the following observations: Based on their total assets, both designated nonbanks are relatively large. They are all larger than the median publicly traded bank or insurance company with assets of $50 billion or more. Gross notional amounts of credit default swaps outstanding (for which designated nonbanks are the reference entities) have decreased since the second quarter of 2012, suggesting that the designated nonbanks are relatively less interconnected and thus have smaller potential spillover effects than in prior years by this measure, all else being equal. Total debt outstanding (excluding deposits) for the two designated nonbanks has decreased since the second quarter of 2012. These trends suggest that the designated nonbanks have become less interconnected and thus have smaller potential spillover effects than in prior years based on this indicator, all else being equal. Total equity as a percentage of assets, except separate accounts, ranged from about 21 percent for AIG to about 11 percent for Prudential in the second quarter of 2016. This range in leverage suggests that the designated nonbanks have varying resilience to shocks and financial distress by this measure, all else being equal. Short-term debt as a percentage of assets, except separate accounts, decreased from the second quarter of 2012 to the second quarter of 2016. Decreases in short-term debt as a percentage of assets, except separate account ranged from about 71 percent for AIG to about 42 percent for Prudential. These trends suggest that the two designated nonbanks’ resilience to shocks and financial distress has improved by this measure, all else being equal. As we reported in December 2013, once fully implemented, some provisions in Title VII of the Dodd-Frank Act may help reduce systemic risks to financial markets in part by increasing margins posted for over- the-counter swaps. In November 2015 and January 2016, respectively, the prudential regulators and CFTC published final rules on margin requirements for uncleared swaps, for swap dealers and major swap participants, pursuant to the Dodd-Frank Act. As discussed previously, the final rules establish minimum initial and variation margin requirements. Using data through the second quarter of 2016, we updated the set of indicators that we developed in our December 2013 report and updated in our December 2014 and December 2015 reports to measure changes in the use of margin collateral for over-the-counter derivatives. This set of indicators may shed light on changes in the use of margin collateral associated with Dodd-Frank Act swap reforms as they are implemented, but the indicators have several key limitations, as described later in this section. Our margin indicators measure the fair value of collateral pledged by counterparties to secure over-the-counter derivatives contracts as a percentage of net current credit exposure for those counterparties for bank holding companies. To protect itself from the loss it would incur if a counterparty defaulted on a derivatives contract, a swap entity could require counterparties to post margin collateral in an amount equal to or greater than its exposure to the contracts. An increase in collateral as a percentage of credit exposure suggests that holding companies have required their counterparties to post a greater amount of collateral against their credit exposure due to derivatives contracts overall, which would be consistent with the purposes of the act’s swap reforms. Figure 2 shows trends in our margin indicators from the second quarter of 2009 through the second quarter of 2016. The rate of collateralization of net current credit exposure for all counterparties has increased from about 71 percent in the third quarter of 2010 to about 91 percent in the second quarter of 2016, suggesting that holding companies generally required their counterparties to post a greater amount of collateral against their derivatives contracts. However, as discussed later, aggregate measures of collateralization rates can mask differences in collateralization rates for different counterparty types. Collateral posted by type of counterparty—banks and securities firms, monoline financial guarantors, hedge funds, sovereign governments, and corporate and all other counterparties—increased (as a percentage of net credit exposure) between the second quarter of 2009 and the second quarter of 2016. However, the rate of collateralization consistently differed by the type of counterparty, with hedge funds consistently posting more collateral as a percentage of credit exposure than other types of counterparties. As we reported in December 2013, according to OCC, the rates differ partly because swaps dealers may require certain counterparties to post both initial and variation margin and other counterparties to post only variation margin. Under the prudential regulators’ 2015 final rule and CFTC’s 2016 final rule for uncleared swaps, minimum floors are set for both initial and variation margins and as a result, the final rules may further contribute to higher rates of collateralization. Our margin indicators, while suggestive, are subject to important limitations. First, they do not identify causal links between changes in collateralization and the Dodd-Frank Act, including its regulations. Rather, the set of indicators tracks changes in collateralization since the act’s passage to examine if the changes were consistent with the act’s goals for increasing collateralization. Second, both net current credit exposure and the fair value of collateral are as of a point in time because the fair values of derivatives contracts and collateral can fluctuate over time. Third, an average collateralization of 100 percent does not ensure that all current counterparty exposures have been eliminated because one counterparty’s credit exposure may be overcollateralized and another’s undercollateralized. Fourth, our indicators measure the fair value of the collateral held against net current credit exposures but do not necessarily measure the risk of uncollateralized losses. The fair value of net current credit exposure does not fully account for the riskiness of any single swap contract. If a party has entered into riskier swaps, it is possible for the rate of collateralization to increase while the risk of uncollateralized losses also increases. Fifth, our indicators are market aggregates that may not reflect the collateralization rate for any single company. Finally, these indicators do not reflect collateralization rates for companies, such as stand-alone broker-dealers, which have credit exposure to counterparties in over-the-counter derivatives contracts but are not affiliated with a bank holding company. We provided a draft of this report to CFPB, Federal Reserve, FDIC, OCC, NCUA, SEC, and CFTC for review and comment. The regulators provided technical comments, which we have incorporated, as appropriate. We are sending copies of this report to the appropriate congressional committees and members and federal financial regulators. 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 evansl@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 VII. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), various federal agencies are directed or have the authority to issue hundreds of regulations to implement the act’s provisions. This report discusses the regulatory analyses conducted by federal financial regulators (financial regulators) in their Dodd-Frank Act rulemakings, including their assessments of which rules they considered to be major rules; coordination between and among federal regulators on these indicators of the impact of selected Dodd-Frank Act provisions and their implementing regulations on financial market stability. The financial regulators are the Bureau of Consumer Financial Protection, also known as the Consumer Financial Protection Bureau (CFPB), the Board of Governors of the Federal Reserve System (Federal Reserve), Federal Deposit Insurance Corporation (FDIC), Office of the Comptroller of the Currency (OCC), National Credit Union Administration (NCUA), Commodity Futures Trading Commission (CFTC), and the Securities and Exchange Commission (SEC). To examine the regulatory analyses conducted by the regulators, we focused our analysis on final rules issued pursuant to the Dodd-Frank Act that were effective between July 22, 2015, and July 23, 2016, a total of 30 rules (see app. II). We compiled these rules from a website maintained by the Federal Reserve Bank of St. Louis that tracks Dodd-Frank Act regulations, which we corroborated with officials from the agencies under review. In examining the regulatory analyses of the agencies in our review, we reviewed federal statutes, regulations, GAO studies, and other material to identify the regulatory analyses the agencies had to conduct as part of their Dodd-Frank rulemakings, focusing on those analyses required under the Paperwork Reduction Act (PRA) and the Regulatory Flexibility Act (RFA). We reviewed Federal Register notices of final rules for the agencies’ determinations of the applicability of PRA and RFA. In some instances, the regulators determined that the analysis was not required or not applicable and indicated this in their final rulemaking. Two analysts recorded the agencies’ determination of whether PRA and RFA were required in a spreadsheet. Using GAO’s Federal Rules database, we found that 9 of the 30 rules were identified as major rules, per the Office of Management and Budget (OMB) guidance, under the Congressional Review Act because they resulted in or are likely to result in an annual impact on the economy of $100 million or more; a major increase in costs or prices; or significant adverse effects on competition, employment, investment, productivity, innovation, or on the ability of U.S.- based enterprises to compete with foreign-based enterprises in domestic and export markets. For agencies subject to Executive Order (E.O.) 12,866, such major rules would be considered significant regulatory actions and subject to formal cost-benefit analysis. We also developed a data collection instrument to compare and assess the regulatory analysis conducted for the major rules against the principles outlined in OMB Circular A-4, which provides guidance to federal agencies on the development of regulatory analysis. To conduct our analyses, we reviewed Federal Register releases of the final rules and the cost-benefit analyses they included in the final rules, and we interviewed agency staff from CFPB, CFTC, SEC, Federal Reserve, FDIC, NCUA, and OCC. We selected five rules for in-depth review, comparing the cost-benefit or similar analyses to specific principles in OMB Circular A-4. To narrow the list from 9 major rules to the 5 rules subject to in-depth review, we selected rules that were from a variety of agencies, including one joint rule, and that covered varied topics. In conducting each individual analysis, we reviewed Federal Register notices prepared by agencies during the course of the rulemaking. To examine interagency coordination among the regulators, we reviewed the Dodd-Frank Act, Federal Register releases, and GAO reports to identify the interagency coordination and consultation requirements for the 30 rules in our scope. As part of this review, analysts looked for key words relating to consultation and coordination in the Federal Register releases and recorded this information in a spreadsheet. An attorney then independently evaluated each determination documented in the spreadsheet to reach concurrence on the assessment. (See app. III for a list of rules and determination of whether coordination was required). We also interviewed officials or staff from CFPB, CFTC, SEC, FDIC, NCUA, the Federal Reserve, and OCC to identify changes in the nature of interagency coordination and consultation. We also asked the financial regulators’ staff to identify any instances of interagency coordination not specified in the Federal Register releases, and if they did not coordinate, to discuss the reasons why. We did not examine the effects of noncoordination on rulemakings, which was beyond the scope of our review. We also selected three rules for in-depth review of interagency coordination: CFTC’s and the prudential regulators’ respective rules on margin requirements for uncleared swaps and CFPB’s rule on integrated mortgage disclosures. We selected these rules based on the opportunity for extensive interagency coordination. We selected the rules on margin requirements for uncleared swaps because the prudential regulators and CFTC issued rules that required coordination among the prudential regulators as well as between the prudential regulators and CFTC. We selected the integrated mortgage disclosure rule because of CFPB’s requirement to consult with the appropriate prudential regulators and other federal agencies on consistency with prudential, market, or systemic objectives administered by such agencies before proposing a rule. We interviewed the responsible agencies to discuss the outcomes of coordination and specific areas where coordination or harmonization of rules was a priority and obtained documentation of specific examples of interagency coordination and consultation. To analyze the impact of the Dodd-Frank Act on financial market stability, we updated several indicators developed in our prior reports with data through the second quarter of 2016. The indicators display trends in both banks that are systemically important financial institutions (bank SIFI) and nonbank financial institutions designated by the Financial Stability Oversight Council (FSOC) for supervision by the Federal Reserve. We updated indicators monitoring changes in size, interconnectedness, complexity, leverage, and liquidity of bank SIFIs. Since we began developing and tracking indicators for bank SIFIs, FSOC has designated three nonbank institutions for enhanced supervision by the Federal Reserve. As such, we updated indicators developed in our December 2015 report that are associated with the size, interconnectedness, leverage, and liquidity of these institutions. Finally, we updated our indicators that monitor the extent to which certain swap reforms are consistent with the act’s goals of reducing risk. For those parts of our methodology that involved the analysis of computer- processed data from Bloomberg, the Federal Reserve Bank of Chicago, the Federal Reserve, the National Information Center, and the Bureau of Economic Analysis, we assessed the reliability of these data by reviewing relevant documentation and electronically testing the data for missing values, outliers, and invalid values. We determined the data were sufficiently reliable for our purposes of monitoring changes in bank SIFIs and designated nonbanks and assessing the amount of margin collateral that over-the-counter derivatives counterparties used. We conducted this performance audit from June 2016 to December 2016 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. The following table lists the 30 Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank-Act) rules that we identified as having effective dates during the scope of our review,—from July 23, 2015 through July 22, 2016. Nine rules were major. The following table lists the 30 Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) rules that we identified as having effective dates during the scope of our review (from July 23, 2015, through July 22, 2016), whether we found evidence of coordination during the rulemaking process, whether the Dodd-Frank Act required interagency or international coordination, and the nature of coordination, if any. The Dodd Frank Wall Street Reform and Consumer Protection Act (Dodd- Frank Act) contains several provisions—including designation by the Financial Stability Oversight Council (FSOC) for supervision by the Board of Governors of the Federal Reserve System (Federal Reserve) and enhanced prudential standards—that apply to nonbank financial companies if FSOC determines that material financial distress at the company or the nature, scope, size, scale, concentration, interconnectedness, or mix of activities at the company could pose a threat to U.S. financial stability. Enhanced prudential standards also apply to bank holding companies with $50 billion or more in total consolidated assets. For this report, we refer to those nonbank financial companies as designated nonbanks and bank holding companies as systemically important banks (bank SIFIs), respectively. Table 8 summarizes some of the Dodd-Frank Act provisions and the rulemakings, including their status, to implement those provisions as of July 22, 2016. We updated indicators to monitor changes in the size, interconnectedness, complexity, leverage, and liquidity of bank holding companies with $50 billion or more in total consolidated assets—bank systemically important financial institutions or bank SIFIs). As we first reported in December 2012, some provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) and related rules may result in adjustments to the these characteristics of bank SIFIs over time. The size, interconnectedness, and complexity indicators are intended to capture the potential for a bank SIFI’s financial distress to affect the financial system and economy (spillover effects). The leverage and liquidity indicators are intended to capture a bank SIFI’s resilience to shocks or its vulnerability to financial distress. We used the following data to construct our indicators: quarterly data on the price index for gross domestic product, which we obtained from the Bureau of Economic Analysis for the period from the second quarter of 2006 to the second quarter of 2016; annual data on numbers and locations of legal entities for holding companies obtained from the Board of Governors of the Federal Reserve System (Federal Reserve) for the period from the second quarter of 2010 to the second quarter of 2016; quarterly data on second-tier bank holding companies, which we obtained from the Federal Reserve via the National Information Center for the period from the second quarter of 2009 to the second quarter of 2016; quarterly balance sheet and income statement data that bank holding companies report on Form FR Y-9C, which we obtained from the Federal Reserve Bank of Chicago for the period from the second quarter of 2009 to the second quarter of 2016; and quarterly data on gross notional amounts of credit default swaps outstanding by reference entity, which we obtained from Bloomberg for the period from the third quarter of 2010 to the second quarter of 2016. Our analysis for our size, leverage, liquidity, and one of our interconnectedness indicators generally includes all top-tier U.S. bank holding companies, including any U.S.-based bank holding company subsidiaries of foreign banking organizations, with total consolidated assets of $1 billion or more that filed Form FR Y-9C for one or more quarters during the period from the first quarter of 2006 to the second quarter of 2016. We chose the threshold of $1 billion in assets to match the threshold for reporting Form FR Y-9C starting in the first quarter of 2015. For our complexity indicators and one interconnectedness indicator, we used data on top-tier U.S. bank holding companies with total consolidated assets of $50 billion or more. We defined bank SIFIs as bank holding companies with total assets of $50 billion or more. We defined large bank SIFIs as bank holding companies with total assets of $500 billion or more, and we defined other bank SIFIs as bank holding companies with total assets of at least $50 billion but less than $500 billion. We defined non-SIFI bank holding companies as bank holding companies with less than $50 billion in total assets. We calculate each of our indicators for each bank holding company in our sample for each quarter from the first quarter of 2006 to the second quarter of 2016, with the exceptions of our complexity indicators, which we calculate only for bank SIFIs as of the second quarter of each year from 2006 to 2016, and one of our interconnectedness indicators, which we calculate only for bank SIFIs for the period from the third quarter of 2010 to the second quarter of 2016. We then calculate the median value of each indicator for each group of bank holding companies—large bank SIFIs, other bank SIFIs, all bank SIFIs, non-SIFI bank holding companies, and all bank holding companies, to the extent possible—and track the median values over time. Finally, we assess the changes in the median values of the indicators for large bank SIFIs and other banks SIFIs between the second or third quarter of 2010 and the second quarter of 2016, depending on the indicator. We say that an indicator has increased or decreased if it has changed by 5 percent or more, depending on the direction of the change, and we say that an indicator has remained about the same if it has changed by less than 5 percent. When stating the implications of the indicator on potential spillover effects, we assume all other things are held equal. Our indicators analysis has limitations. For example, the indicators do not identify causal links between changes in bank SIFI characteristics and the act. Rather, the indicators track changes in the size, interconnectedness, complexity, leverage, and liquidity of bank SIFIs since the Dodd-Frank Act was passed to examine whether the changes were consistent with the act. However, other factors—including the economic downturn, international banking standards agreed upon by the Basel Committee on Banking Supervision (Basel Committee), and monetary policy actions— also affect bank holding companies and, thus, the indicators. These factors may have a greater effect on bank SIFIs than the Dodd-Frank Act. In addition, some rules implementing provisions related to bank SIFIs have not yet been finalized or fully implemented. Thus, changes in our indicators include the effects of these rules only insofar as bank SIFIs have changed their behavior in response to issued rules and in anticipation of expected rules. In this sense, our indicators provide baselines against which to compare future trends. Furthermore, each indicator has its own specific limitations, which we expand on in the following sections. An institution’s size is associated with the potential for its financial distress to affect the financial system and the broader economy (spillover effects). We developed three indicators of size: (1)—the number of bank holding companies with assets of $50 billion or more, (2) total assets of the consolidated bank holding company as reported on its balance sheet (adjusted for inflation and measured in billions of second quarter 2016 dollars), and (3) the market share of the bank holding company (equal to its total assets as a percentage of the total assets of all of the holding companies we analyzed). These indicators do not include an institution’s off-balance-sheet activities and thus may understate the amount of financial services or intermediation an institution provides. Also, asset size alone is not an accurate determinant of systemic significance because an institution’s systemic significance also depends on other factors, such as its complexity and interconnectedness. Furthermore, some bank SIFIs are U.S.-based bank holding company subsidiaries of foreign banking organizations, and the size of these bank SIFIs may not reflect the potential for the parent company’s financial distress to affect the financial system and the economy. We observed the following changes in our size indicators over the period from the third quarter of 2010 to the second quarter of 2016 (see table 9): The number of bank SIFIs decreased by one between the third quarter of 2010 and the second quarter of 2016. The number of large bank SIFIs decreased by one, and the number of other bank SIFIs was the same. Median assets of bank SIFIs decreased by about 16 percent. Median assets of large bank SIFIs increased by about 38 percent, while median assets of other bank SIFIs decreased by about 10 percent. Median market shares of bank SIFIs decreased by about 13 percent. Median market shares of large bank SIFIs increased by about 42 percent while median market shares of other bank SIFIs decreased by about 7 percent. Interconnectedness reflects direct or indirect linkages between financial institutions that may transmit distress from one financial institution to another (spillover effects). We developed two indicators of interconnectedness based on those that the Financial Stability Oversight Council uses in the first stage of its process for designating nonbank SIFIs (1)—gross notional amount of credit default swaps outstanding for which the institution is the reference entity (adjusted for inflation and measured in millions of second quarter 2016 dollars) and (2) total debt outstanding (adjusted for inflation and measured in second quarter 2016 dollars). We measure total debt outstanding as the difference between total liabilities and total deposits. We observed the following changes in our interconnectedness indicators over the period from the third quarter of 2010 to the second quarter of 2016 (see table 10): Median credit default swaps gross notional amounts among bank SIFIs that are reference entities decreased by about 65 percent. Median credit default swaps gross notional amounts for large bank SIFIs that are reference entities have decreased by about 62 percent, while median credit default swaps gross notional amounts for other bank SIFIs that are reference entities decreased by about 80 percent. We note that few bank SIFIs are reference entities—only six or seven large bank SIFIs are reference entities, and only three or four other bank SIFIs are reference entities in any one quarter. Median total debt outstanding for bank SIFIs decreased by about 19 percent. Median debt outstanding for large bank SIFIs decreased by about 23 percent, while median debt outstanding for other bank SIFIs remained about the same. Institutions that are more complex are likely to be more difficult to resolve and therefore cause significantly greater disruption to the wider financial system and economic activity if they fail (spillover effects). Resolution via a bankruptcy or under the backstop orderly liquidation authority in Title II of the Dodd-Frank Act may be more difficult if a large number of legal entities or legal systems are involved. For example, a SIFI with a large number of legal entities—particularly foreign ones operating in different countries under different regulatory regimes—may be more difficult to resolve than a SIFI with fewer legal entities in fewer countries. We developed three indicators of this type of complexity (1)—the number of a bank SIFI’s legal entities, (2) the number of a bank SIFI’s foreign legal entities, and (3) the number of countries in which a bank SIFI’s foreign legal entities are located. A key limitation of our indicators is that they may not capture all relevant aspects of the complexity of a SIFI, such as complexity that could result from being a subsidiary of a foreign company. We observed the following changes in our complexity indicators over the period from the second quarter of 2010 to the second quarter of 2016 (see table 11): Median numbers of legal entities for bank SIFIs decreased by 37, or about 28 percent. Median numbers of legal entities for large bank SIFIs decreased by 1016, or about 37 percent, and median numbers of legal entities for other bank SIFIs decreased by 26, or about 24 percent. Median numbers of foreign legal entities for bank SIFIs decreased by 1, or about 11 percent. Median numbers of foreign legal entities for large bank SIFIs increased by 131, or about 20 percent, and median numbers of foreign legal entities for other bank SIFIs decreased by 2, or about 33 percent. Median numbers of countries in which foreign legal entities are located for bank SIFIs decreased by 1, or about 20 percent. Median numbers of countries in which foreign legal entities are located for large bank SIFIs remained about the same (increased by 1, or about 2 percent), and median numbers of countries in which foreign legal entities are located for other bank SIFIs decreased by 1, or about 25 percent. Leverage generally captures the relationship between an institution’s exposure to risk and capital that can be used to absorb losses from that exposure (resilience). Institutions with more capital to absorb losses are less likely to fail, all else being equal. We track two indicators of leverage—(1) a bank SIFI’s tangible common equity as a percentage of total assets and (2) a bank SIFI’s total bank holding company equity as a percentage of total assets. Tangible common equity is calculated by subtracting the sum of intangible assets and perpetual preferred stock (net of related Treasury stock) from the company’s equity capital. A limitation of both indicators is that they may not fully reflect an institution’s exposure to risk because total assets do not reflect an institution’s risk exposure from off-balance-sheet activities and generally treat all assets as equally risky. We observed the following changes in our leverage indicators over the period from the third quarter of 2010 to the second quarter of 2016 (see table 12): Median tangible common equity as a percentage of assets for bank SIFIs increased by about 34 percent. Median tangible common equity as a percentage of assets for large bank SIFIs increased by about 23 percent, and median tangible common equity as a percentage of assets for other bank SIFIs increased by about 32 percent. Median total equity as a percentage of assets for bank SIFIs increased by about 15 percent. Median total equity as a percentage of assets for large bank SIFIs increased by about 27 percent, and median total equity as a percentage of assets for other bank SIFIs increased by about 11 percent. Liquidity represents the ability to fund assets and meet obligations as they become due, and liquidity risk is the risk of not being able to obtain funds at a reasonable price within a reasonable time period to meet obligations as they become due. Institutions with more liquidity (and less liquidity risk), are less likely to fail, all else being equal (resilience). We developed two indicators of liquidity: (1)—short-term liabilities as a percentage of total liabilities and (2) liquid assets as a percentage of short-term liabilities. Short-term liabilities reflect an institution’s potential need for liquidity in the immediate future. We measure short-term liabilities as the sum of federal funds purchased and repurchase agreements, trading liabilities (less derivatives with negative fair value), other borrowed funds, deposits held in foreign offices, and jumbo time deposits (deposits of $100,000 or more) held in domestic offices. Liquid assets are assets that can be sold easily without affecting their price and, thus, can be converted easily to cash to cover debts that come due. Accordingly, liquid assets as a percentage of an institution’s short-term liabilities are a measure of an institution’s capacity to meet potential upcoming obligations. We measure liquid assets as the sum of cash and balances due from depository institutions, securities (less pledged securities), federal funds sold and reverse repurchases, and trading assets. A limitation of both indicators is that they do not include off- balance-sheet liabilities, such as callable derivatives or other potential derivatives- related obligations. The second indicator also does not include off- balance-sheet liquid assets, such as short-term income from derivative contracts. Because these limitations affect both the numerator and the denominator of our indicators, we cannot determine whether the exclusion of off-balance-sheet items results in an under- or overstatement of an institution’s liquidity need and access. We observed the following changes in our liquidity indicators over the period from the third quarter of 2010 and to the second quarter of 2016 (see table 13): Median short-term liabilities as a percentage of total liabilities for bank SIFIs decreased by about 12 percent. Median short-term liabilities as a percentage of total liabilities for large bank SIFIs decreased by about 26 percent, and median short-term liabilities as a percentage of total liabilities for other bank SIFIs decreased by about 20 percent. Median liquid assets as a percentage of short-term liabilities for bank SIFIs increased by about 66 percent. Median liquid assets as a percentage of short-term liabilities for large bank SIFIs increased by about 54 percent, and median liquid assets as a percentage of short- term liabilities for other bank SIFIs increased by about 61 percent. The following tables list select rules that implement sections of Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd- Frank Act) related to central clearing requirements for swaps and security-based swaps, and margin and capital requirements for swaps entities, as of July 22, 2016. In addition to the contact named above, Stefanie Jonkman (Assistant Director), Janet Fong (Analyst-in-Charge), Farrah Graham, Donald Hirasuna, Courtney LaFountain, John McGrail, Marc Molino, Jennifer Schwartz, and Shannon Smith made key contributions to this report.

Summary: The Dodd-Frank Act requires or authorizes various federal agencies to issue hundreds of rules to implement reforms intended to strengthen the financial services industry. Congress included a provision in statute for GAO to study these financial services regulations annually. This sixth annual report discusses (1) the regulatory analyses federal agencies conducted for the 30 rules issued pursuant to the Dodd-Frank Act that became effective between July 2015 and July 2016, (2) coordination among the regulators on these rules, and (3) indicators of the impact of select Dodd-Frank Act rules on financial market stability. GAO assessed the extent to which regulators followed OMB's cost-benefit guidance for five major rules selected because they covered a variety of agencies and topics. GAO also examined coordination for three rules selected because they involved extensive interagency coordination and covered many regulators required to coordinate under the Dodd-Frank Act. GAO also reviewed documentation and interviewed regulatory staff. Federal financial regulators reported conducting the required regulatory analyses for rules issued pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) as part of the rulemaking process. For example, of the 30 rules GAO reviewed, which became effective between July 2015 and July 2016, the regulators analyzed the paperwork burden imposed for 12 rules for which they determined this analysis was required. For the remaining 18 rules, they determined that this analysis was not required or applicable. For instance, in some cases they determined that no new collection of information was required. As independent regulatory agencies, the federal financial regulators are not subject to executive orders requiring federal agencies to conduct detailed cost-benefit analysis in accordance with Office of Management and Budget (OMB) guidance, but regulators told GAO that they generally follow this guidance in spirit. GAO reviewed five of the nine rules considered major—that is, rules likely to result in an annual impact on the economy of $100 million or more, among other things—and found that regulators addressed most key elements of OMB guidance in their regulatory analyses. For instance, these agencies generally quantified some costs related to these rules. However, they did not quantify benefits in each rule and noted data and other limitations to doing so. In 2011, GAO recommended that the regulators more fully incorporate OMB's regulatory guidance into their written rulemaking policies, but not all regulators have implemented this recommendation. Regulators reported coordinating, as required or voluntarily, on 19 of the 30 rules GAO reviewed. The Dodd-Frank Act and the rulemaking process did not require regulators to coordinate on the remaining 11 rules. GAO focused in particular on coordination efforts involving three rulemakings: the Commodity Futures and Trade Commission's and the prudential regulators' rules on margin requirements for over-the-counter swaps, and the Bureau of Consumer Financial Protection's (CFPB) rule on integrated mortgage disclosures. For the swaps rules, regulators coordinated domestically and internationally and, according to regulators, they largely harmonized their respective rules. For the integrated mortgage disclosure rule, CFPB followed its internal guidance for coordinating with relevant agencies throughout the rulemaking process. The full impact of the Dodd-Frank Act remains uncertain because some of its rules have not been finalized and insufficient time has passed to evaluate others. As of December 2016, regulators had issued final rules for about 75 percent of the 236 provisions of the act that GAO is monitoring. Using recently released data, GAO updated indicators from its prior reports, including those that monitor systemic risk characteristics of large U.S. bank holding companies. These indicators track changes in characteristics of these companies such as size, interconnectedness, leverage, and liquidity since the passage of the act to examine if the changes have been consistent with the goals of the act. While changes in the indicators are not necessarily evidence of the impacts of the act's provisions, trends in indicators suggested large bank holding companies have become larger but less vulnerable to financial distress. GAO makes no new recommendations but continues to monitor the implementation of five prior recommendations intended to improve, among other things, financial regulators' cost-benefit analysis, interagency coordination, and impact analysis associated with Dodd-Frank regulations. Not all regulators have implemented these recommendations.