The financial services industry—including the banking, securities, and futures sectors—has changed significantly over the last several decades. Today, the industry generally consists of fewer and larger firms that provide more and varied services, offer similar products, and operate in increasingly global markets. Despite these changes, the U.S. financial regulatory structure has largely remained the same. It is a complex system of multiple federal and state regulators as well as self-regulatory organizations (SRO) that operate largely along functional lines, even as these lines have become increasingly blurred in the industry. The U.S. regulatory system for financial services is described as “functional” in that financial products or activities are generally regulated according to their function, no matter who offers the product or participates in the activity. In the banking industry, the specific regulatory configuration 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; thrifts, which include savings banks, savings associations, 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 an historical emphasis on serving people of modest means. These charters may be obtained at the state or federal level. State regulators charter institutions and participate in their oversight, but all institutions that offer federal deposit insurance have a primary federal regulator. The primary federal banking regulators—all of which may issue regulations and take enforcement actions against industry participants within their jurisdiction—are identified in table 1. 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 the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), respectively. SEC regulates the securities markets, including participants such as securities exchanges, broker-dealers, investment companies, and investment advisers. In the securities industry, certain SROs—including the securities exchanges and the Financial Industry Regulatory Authority—have responsibility for overseeing the securities markets and their members; establishing the 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. SEC oversees SROs by inspecting their operations and reviewing their rule proposals and appeals of final disciplinary proceedings. In overseeing the SROs’ implementation and enforcement of rules, SEC uses its statutory authority to, among other things, review and approve SRO-proposed rule changes, approve or disapprove proposals that are subject to SEC action before they can become operative, or suspend for additional proceedings proposals that were designated by an SRO for immediate effectiveness. In the futures industry, SROs include the futures exchanges and the National Futures Association. Futures SROs are responsible for establishing and enforcing rules governing member conduct and trading; providing for the prevention of market manipulation, including monitoring trading activity; ensuring that futures industry professionals meet qualifications; and examining members for financial strength and other regulatory purposes. CFTC independently monitors, among other things, exchange trading activity, large trader positions, and certain market participants’ financial conditions. Regulation is one of the principal tools that the federal government uses to implement public policy. Section 553 of the Administrative Procedure Act (APA) contains requirements for the most common type of federal rulemaking—”informal rulemaking” or “notice and comment” rulemaking. Most federal rulemaking is conducted as informal rulemaking, in which agencies publish a notice of proposed rulemaking in the Federal Register and provide “interested persons” with an opportunity to comment on the proposed rule, generally for a period of at least 30 days. Under the APA, in addition to allowing for comments, an agency may choose to hold public hearings during the comment period for informal rulemaking but is not required to do so. After giving interested persons an opportunity to comment on the proposed rule, and after considering the public comments, the agency then publishes the final rule, incorporating a general statement of the rule’s basis and purpose. The APA’s notice and comment procedures do not apply to certain categories of rules, including interpretative rules, general statements of policy, or rules that deal with agency organization, procedure, or practice, or when the agency for good cause finds that notice and public procedures thereon are impracticable, unnecessary or contrary to the public interest. The APA has been in place for more than 60 years, but most additional statutory requirements for rulemaking have been imposed more recently. As part of the rulemaking process, past and current Congresses and Presidents have required agencies to comply with an increasing number of procedural and analytical requirements before issuing a rule. Some regulatory analysis requirements apply only to executive agencies, while others also apply to independent regulatory agencies such as the federal financial regulators. The goals of these requirements include promoting public participation in rulemaking, reducing regulatory burdens, requiring more rigorous regulatory analysis, and enhancing oversight of agency rulemaking. These requirements entail a wide range of procedural, consultative, and analytical actions on the part of the agencies and are discussed in further detail in this report. Under the Dodd-Frank Act, federal financial regulatory agencies are directed or have the authority to issue hundreds of regulations to implement the act’s reforms. The Dodd-Frank Act directs agencies to adopt regulations to implement the act’s provisions and in some cases gives the agencies little or no discretion in deciding how to implement the provisions. For instance, the Dodd-Frank Act made permanent a temporary increase in the FDIC deposit insurance coverage amount ($100,000 to $250,000); therefore, FDIC revised its implementing regulation to conform to the change. However, other rulemaking provisions in the act appear to be discretionary in nature, stating that (1) certain agencies may issue rules to implement particular provisions or that the agencies may issue regulations that they decide are “necessary and appropriate,” or (2) agencies must issue regulations to implement particular provisions but have some level of discretion as to the substance of the regulations. As a result, the agencies may decide to promulgate rules for all, some, or none of the provisions, and often have broad discretion to decide what these rules will contain. As part of the rulemaking process, federal financial regulatory agencies are required to conduct a variety of regulatory analyses, but benefit-cost analysis is not among the requirements. Requirements include those set out in the Paperwork Reduction Act (PRA) and the Regulatory Flexibility Act (RFA), which impose regulatory analysis requirements on federal agencies, including the federal financial regulators. In particular, PRA requires agencies to justify any collection of information from the public to minimize the paperwork burden the collection imposes and to maximize the practical utility of the information collected. Under PRA, agencies are required to submit all proposed information collections to OMB’s Office of Information and Regulatory Affairs (OIRA) for review and approval. As a result of PRA, agencies also estimate the time and expense required to comply with the paperwork requirements contained in the rule. RFA requires federal agencies to (1) assess the impact of their regulation on small entities, including businesses, governmental jurisdictions, and certain not-for-profit organizations with characteristics set forth in the act, and (2) consider regulatory alternatives to lessen the regulatory burden on small entities. Under RFA, federal agencies, including federal financial regulators, generally must prepare a “regulatory flexibility analysis” in connection with proposed and certain final rules, unless the head of the issuing agency certifies that the proposed rule would not have a significant economic impact upon a substantial number of small entities. While both PRA and RFA require agencies to assess various impacts of their rules, they do not require the agencies to formally assess the costs and benefits of their rules through a benefit-cost or similar analysis. See appendix II for more information about these and other statutes. In addition to these generic requirements, certain federal financial regulators are required by their authorizing or other statutes to consider specific benefits, costs, and impacts of their rulemaking. However, as described below, these statutes require the regulators to consider certain benefits, costs, and impacts of their regulations, but the statutes do not prescribe a specific methodology for benefit-cost or similar analyses. Under Section 15(a) of the Commodity Exchange Act, CFTC is required to consider the costs and benefits of its actions before issuing a rulemaking under the act. Section 15(a) does not require CFTC to quantify the costs and benefits of a new regulation or determine whether the benefits outweigh its costs; rather, it requires CFTC to consider the costs and benefits of its actions. Section 15(a) further specifies that costs and benefits be evaluated in light of five broad areas of market and public concern: (1) the protection of market participants and the public; (2) the efficiency, competitiveness, and financial integrity of futures markets; (3) price discovery; (4) sound risk management practices; and (5) other public interest considerations. Under section 1022(b) of the Consumer Financial Protection Act (Title X of the Dodd-Frank Act), CFPB must consider the potential benefits and costs to consumers and providers of consumer financial products and services, including any potential reduction in consumers’ access to consumer financial products or services that might result from the rule, as well as the impact of proposed rules on depository institutions and credit unions with $10 billion or less in assets and consumers in rural areas. In addition, under section 1100G(d)(1) of the Dodd- Frank Act, CFPB is required to include in its initial regulatory flexibility analysis a description of any projected increase in the cost of credit for small entities and any significant alternatives to the proposed rule that accomplish the same objectives but minimize any increase in the cost of credit for small entities. The National Securities Market Improvement Act of 1996, which amended the Securities Act of 1933, Securities Exchange Act of 1934, and Investment Company Act of 1940, requires SEC, when engaged in rulemaking that requires it, to consider or determine whether an action is necessary or appropriate to the public interest, to consider, in addition to the protection of investors, whether the action will promote efficiency, competition, and capital formation during the rulemaking process. Additionally, Section 23(a)(2) of the Securities Exchange Act requires SEC to consider the impact that any rule promulgated under the act would have on competition. This provision states that a rule should not be adopted if it would impose a burden on competition that is not necessary or appropriate to the act’s purposes. Section 302 of the Riegle Community Development and Regulatory Improvement Act requires federal banking regulators to consider certain factors in determining the effective date and administrative compliance requirements for new regulations that impose additional reporting, disclosure, or other requirements on insured depository institutions. These factors include any administrative burdens the regulations would place on depository institutions, including small depository institutions and customers of depository institutions and the benefits of the regulations. In addition to statutory requirements, certain executive orders, namely E.O. 12866, require some federal agencies to assess the economic effects of their significant rules. However, the federal financial regulators, as independent regulatory agencies, are not subject to the economic analysis requirements of E.O. 12866. The order contains 12 principles of regulation that direct agencies to perform specific analyses to identify the problem to be addressed, assess its significance, assess both the costs and benefits of the intended regulation, design the regulation in the most cost-effective manner to achieve the regulatory objective, and base decisions on the best reasonably obtained information available. In 2003, OMB issued Circular A-4 to provide guidance to federal agencies on the development of regulatory analysis required by E.O. 12866 (now supplemented by Executive Order 13563 (E.O. 13563)). The guidance defines good regulatory analysis and standardizes the way benefits and costs of federal regulatory actions should be measured and reported. In particular, the guidance provides for more systematic evaluation of qualitative and quantitative benefits and costs, including how to monetize them (fig. 1). OMB subjected its guidance to public comment, interagency review, and peer review. Although federal financial regulatory agencies are not required to follow E.O. 12866 or OMB Circular A-4, CFTC, Federal Reserve Board, FDIC, NCUA, OCC, and SEC officials have said that their agencies follow OMB’s guidance in spirit or principle. CFPB officials also said that the Bureau expects to follow the spirit of OMB’s guidance. As required by statute and internal policies, federal financial regulators conducted a variety of regulatory analyses as part of their Dodd-Frank Act rulemakings. We reviewed the regulators’ rulemaking policies and procedures and found that they provided guidance consistent with their statutory requirements, such as PRA and RFA. In this regard, our findings are consistent with the recent findings of the Inspectors General of CFTC, the Federal Reserve Board, the Department of Treasury (for OCC), FDIC, and SEC. At the request of 10 members of the U.S. Senate Committee on Banking, Housing, and Urban Affairs, these Inspectors General reviewed the economic analyses done by their agencies for several proposed Dodd-Frank Act rules. They found that the agencies largely followed the statutory and other requirements applicable to their rulemaking and related economic analysis. Although most of the federal financial regulators told us that they tried to follow Circular A-4 in principle or spirit, their policies and procedures did not fully reflect OMB guidance on regulatory analysis. For example, FDIC, the Federal Reserve Board, OCC, and NCUA all have general policies that reflect the broad regulatory analysis principles associated with Circular A-4—such as determining the need for a regulation and examining alternative approaches. CFTC’s and SEC’s policies also include examples of benefit-cost analysis that reflect statutory requirements to consider certain types of benefits and costs. However, the regulators’ policies generally do not fully address the information challenges that regulators encounter as they draft regulations, as such challenges are addressed by Circular A-4. In general, the regulators’ policies did not include the level of detail or instruction found in Circular A- 4 for carrying out regulatory analyses. As noted, these regulators are not subject to the economic analysis requirements of E.O. 12866 or 13563 and, in turn, the OMB guidance. Importantly, the guidance serves as best practices for conducting regulatory analysis and, thus, provides an objective basis for identifying areas where the regulators could improve their policies and procedures as well as the quality of their regulatory analyses. Federal financial regulators had limited or no discretion in connection with the majority of the Dodd-Frank Act rules that we reviewed. Twenty-one of the 32 final rules that were effective as of July 21, 2011, are mandatory— that is, the Dodd-Frank Act directed the agencies to adopt regulations containing substantive provisions specified by the statute. As a result, the agencies were provided with little or no discretion as to whether or how to implement these statutory provisions. For instance, the Dodd-Frank Act eliminated the prohibition against payment of interest on demand deposit accounts, requiring FDIC and the Federal Reserve Board to repeal certain regulations to reflect the statutory change. Eleven of the final rules provided the regulators with some level of discretion in implementation. Three of the rules were identified by the regulators as “major” rules that could have a $100 million or more annual impact on the economy and would thus, as significant regulatory actions, be subject to formal benefit- cost analysis under E.O. 12866 if the relevant agencies were required to follow it. See appendix III for information about the 32 Dodd-Frank Act rules that were effective as July 21, 2011. Through our review of the regulatory analyses conducted by federal financial regulators for their Dodd-Frank Act regulations, we found areas where such analyses could have been improved if the regulators had applied OMB’s guidance more fully. We reviewed 10 of the final rules that allowed for some level of discretion on the part of the regulator. Each of the 10 regulations included a discussion of the regulatory analyses the agencies performed to comply with RFA and PRA. For most of the regulations, the regulators concluded that the regulation would not have a “significant economic impact” on small businesses per RFA. For instance, some regulations covered a line of business (e.g., retail foreign exchange) in which no small entities were engaged. One RFA analysis identified cost savings for small businesses as a result of the rule. The regulators also identified the information collection requirements that their rules would impose on regulated entities, per PRA. For one PRA analysis the agency monetized the costs of providing required information and five other analyses quantified the hours needed to provide that information. In particular, two rules promulgated by SEC had information collection requirements that were essential to the rule. For those rules, SEC considered alternative requirements for regulated entities and provided reasons for choosing the alternative selected. For an OCC rule, a separate impact analysis was conducted to determine whether the rule would have an annual cost of $100 million or more, in accordance with the Unfunded Mandates Reform Act and the Congressional Review Act. (See app. II for information about these statutory requirements.) For each of the 10 regulations, we found that the regulators identified the problem that the regulation was intended to address and, in 6 cases, assessed the problem’s significance. In addition, we found that the regulators used the statutory discretion allowed to examine reasonable alternatives. In many instances, they requested public comments on specific elements of the regulation and then examined alternative regulatory approaches in the context of responding to the comments. Most of the regulations also considered different compliance dates for enforcement to begin. For example, one agency found that its regulation would impact municipalities and thus provided a transition period for compliance of over 3 years for municipal entities. For 7 of the 10 regulations we reviewed, the agencies generally assessed benefits and costs of the alternative chosen. Specifically, SEC and CFTC analyzed the benefits and costs of their regulations and FDIC included discussions of benefits and costs in response to comments about specific elements of its regulations. As recommended by OMB’s guidance, the analyses generally included: descriptions of the benefits and costs that accrue to U.S. citizens and descriptions of the benefits and costs measured against a baseline, descriptions of the reasons for choosing among reasonable descriptions of the benefits and costs that could not be monetized or quantified, and cross-references to data or studies on which the analysis was based. While these aspects of the regulators’ benefit-cost analyses were consistent with OMB’s guidance, other aspects of the analyses were not. In particular, one of the seven benefit-cost analyses monetized the costs of the regulation, but the analysis did not monetize the benefits. None of the other analyses monetized either the benefits or costs, identified the type and timing of them, or expressed them in constant dollars. According to Circular A-4, monetizing allows regulators to evaluate different regulatory options using a common measure. When it is not possible to monetize a benefit or cost, OMB’s guidance encourages agencies to measure it quantitatively, in terms of its physical units. Two of the seven benefit-cost analyses quantified the benefits and costs of the regulation that could not be monetized; the remaining five regulations that assessed benefits and costs did not attempt to quantify either the benefits or the costs. When it is not possible to measure benefits and costs monetarily or quantitatively, OMB guidance instructs agencies to present qualitative information on benefits and costs, including a discussion of the strengths and limitations of the qualitative information. However, none of the benefit-cost analyses of the federal financial regulators that we reviewed either explained why benefits and costs could not be monetized or quantified or discussed the strengths and limitations of the available qualitative information. In addition, only two of the seven benefit-cost analyses looked beyond direct benefits and costs and considered any important ancillary benefits, costs, and countervailing risks, as recommended by OMB guidance. Without monetized or quantified benefits and costs, or an understanding of the reasons they cannot be monetized or quantified, it is difficult for businesses and consumers to determine if the most cost-beneficial regulatory alternative was selected or to understand the limitations of the analysis performed. See appendix IV for more information about the regulatory analysis, including the benefit-cost analysis, of the 10 regulations that we reviewed. Although federal financial regulators said that they followed OMB’s guidance in spirit or principle, we found areas where regulators could have improved their regulatory analyses by applying OMB’s guidance more fully. As a result, regulators may be missing an opportunity to enhance the rigor and improve the transparency of their analyses. The current administration has made efforts to encourage federal financial regulatory agencies to conduct more rigorous analysis of financial regulations. For instance, in July 2011, the President signed E.O. 13579 to encourage independent regulatory agencies to comply with E.O. 13563 (which supplements E.O. 12866) and enhance the rigor and transparency of their analyses. In addition, in its 2011 annual report to Congress, OMB emphasized that better information on the benefits and costs of the rules issued by independent regulatory agencies would help in informing the public and obtaining a full accounting of the rules’ benefits and costs. OMB reported that the absence of such information was a continued obstacle to transparency and might have adverse effects on public policy. Academics, policy analysts, and stakeholders from industry groups have noted a number of concerns with regulatory analyses of the regulations issued pursuant to the Dodd-Frank Act. For example, representatives from industry and consumer associations said that the regulatory analyses done to date for the proposed and finalized Dodd-Frank Act regulations generally focused on measuring the costs associated with data collection and did not provide information on the possible impact of regulations on the behavior of businesses and consumers. While they were critical of the analyses conducted, the representatives also recognized that the regulators faced challenges in producing meaningful regulatory analyses, in part because of tight time frames for issuing regulations and the lack of available data. Further, some academics and policy analysts have argued that benefit- cost analyses of financial regulations have not been as rigorous as those done for other regulations. Specifically, a review of financial regulations by one analyst led him to conclude that “the nation’s financial regulators ha largely failed to perform the rigorous analysis required of most other government agencies, especially those in the fields of health, safety, and environmental regulation.” Other policy analysts concluded that regulatory analyses by independent regulatory agencies, including some federal financial regulators “generally do not analyze economic effects in a manner intended to meet any identifiable standards for such analysis.” However, an academic with whom we spoke stated that additional cost- benefit analysis requirements will provide only a marginal increase in value; instead, according to the academic, the goal should be to accomplish regulatory objectives at minimum cost. As we have reported, the difficulty of reliably estimating the costs of regulations to the financial services industry and the nation has long been recognized, and the benefits of regulation generally are regarded as even more difficult to measure. This situation presents challenges for regulators attempting to estimate the anticipated costs of regulations and also for industries seeking to substantiate claims about regulatory burdens. For example, while compliance costs of financial regulations can usually be estimated and measured, the economic costs of transactions foregone as the result of regulation can be more difficult to anticipate and measure. Other entities have also identified shortcomings in some of the regulators’ benefit-cost analyses. For example, the United States Court of Appeals for the District of Columbia Circuit determined that SEC failed to adequately assess the economic aspects of a regulation. In addition, in the spring of 2011, the CFTC Inspector General found that for four rules it examined, CFTC generally adopted a “one size fits all” approach without giving significant regard to the deliberations addressing idiosyncratic cost and benefit issues that were shaping each rule. CFTC has since revised its staff guidance on cost-benefit considerations for Dodd-Frank Act rulemakings and provided guidance to address the recommendations of the Inspector General. Finally, many federal financial regulators told us that it could be challenging to obtain the best economic information available to conduct their regulatory analyses in a timely manner. For example, a regulator stated that much of the information is held by regulated entities and considered proprietary, and neither the regulators nor the regulated entities want the information made public during the public rulemaking process. Also, some regulators note that PRA limits their ability to request information outside of the public rulemaking process from ten or more entities at a time unless OMB does an extensive review of and approves the request. Furthermore, given the time constraints for performing regulatory analysis for Dodd-Frank Act regulations, a regulator said that the time required to complete an OMB review could preclude them from being able to pursue information outside the rulemaking process. The Dodd-Frank Act requires or authorizes the federal financial regulators to promulgate hundreds of rulemakings. Some of these rules will be issued jointly by multiple agencies and thus require interagency coordination. Other rules will be issued separately by regulators but, in some cases, cover similar subject matter, creating the potential for overlap or duplication. For instance, authority for developing and adopting regulations to implement Section 619, also known as the Volcker Rule, is divided among the CFTC, FDIC, the Federal Reserve Board, OCC, and SEC. While the Dodd-Frank Act does not require all of the regulators to issue a joint rulemaking on the Volcker Rule, it does require that the regulators consult and coordinate with each other, in part to ensure that their regulations are comparable. In general, coordination among federal agencies takes place when two or more agencies engage in joint activities in an effort to reduce duplication or overlap in programs and regulations. Such efforts may not only ease the burden of compliance on industry but also reduce market participants’ uncertainty about the future functioning of financial markets. Joint activities can range from required interagency meetings during a joint rulemaking to voluntary informal discussions among colleagues across different agencies engaged in similar efforts. In sum, effective coordination could help agencies minimize or eliminate staff and industry burden, administrative costs, conflicting regulations, unintended consequences, and uncertainty among consumers and markets. The Dodd-Frank Act includes a number of both agency-specific and rule- specific coordination and consultation requirements. For example, it imposes specific interagency coordination and consultation requirements and responsibilities for the Financial Stability Oversight Council (FSOC) and CFPB. Title I of the Dodd-Frank Act creates FSOC to, among other things, identify potential threats to the financial stability of the United States and make recommendations to primary functionary regulatory agencies to apply certain supervisory standards. Title I imposes a broad responsibility on FSOC to facilitate interagency coordination by facilitating information sharing and coordination among its member agencies and other federal and state agencies on the development of financial services policy, rulemaking, examinations, reporting requirements, and enforcement actions. Title X of the Dodd-Frank Act requires CFPB to consult with the appropriate prudential regulators or other federal agencies, both before proposing a rule and during the comment process, regarding consistency with prudential, market, or systemic objectives administered by such agencies. CFPB must also publish any written objections to a proposed rule by a prudential regulator when the rule is adopted, along with an explanation of its decision to accept or reject the objection. In addition, FSOC can set aside a final regulation prescribed by CFPB with a two-thirds vote if it decides that the regulation or provision would put the safety and soundness of the banking system or the stability of the financial system at risk. While not a specific coordination requirement, this requirement will also serve to encourage CFPB to coordinate its rulemaking with other regulators. The Dodd-Frank Act does not subject any of the other federal financial regulators to similar overarching coordination requirements, but it does impose rule-specific coordination or consultation requirements. For example, it requires regulators to engage in a number of joint rulemakings, implicitly requiring them to coordinate with each other. It also includes provisions that explicitly require the regulators to coordinate or consult with each other when promulgating a specific rule or related rules dealing with a particular subject matter. Examples of such coordination and consultation requirements rules include the following: Title I includes a number of consultation or coordination requirements. For example, FSOC is required to consult with the primary financial regulatory agency, if any, before designating a nonbank financial company as systemically important. FSOC must also consult with relevant members before imposing prudential standards or other requirements that are likely to have a “significant impact” on a functionally regulated subsidiary or depository institution subsidiary of a systemically important company. Before imposing prudential standards or other requirements likely to have a significant impact on a subsidiary of a non-bank financial company or of certain bank holding companies supervised by the Federal Reserve Board, the Federal Reserve Board must consult with each FSOC member that primarily supervises any such subsidiary with respect to such standards or requirements. Finally, the Federal Reserve Board also is required to consult with FSOC and FDIC on setting requirements to provide for early remediation of financial distress of a nonbank financial company that it supervises or a bank holding company with total consolidated assets equal to or greater than $50 billion. Title II of the Dodd-Frank Act requires FDIC, in consultation with FSOC, to adopt such rules it deems necessary or appropriate to implement the orderly liquidation authority process. Title VII of the Dodd-Frank Act creates a regulatory regime for the over-the-counter swaps markets. Under this title, SEC and CFTC are required to coordinate and consult with each other and any relevant prudential regulators before commencing rulemaking on swaps or swap-related subjects, for the express purpose of assuring regulatory consistency and comparability across the rules or orders. Title VIII of the Dodd-Frank Act includes a requirement that CFTC and SEC coordinate with FSOC and the Federal Reserve Board for any regulations they decide to issue regarding risk management supervision programs for designated clearing entities. Of the 18 final rules that we reviewed to assess interagency coordination, federal regulators told us that they coordinated with other regulators on 9 of the rulemakings. Two of the rules required interagency coordination under the Dodd-Frank Act, but none of the other 16 rules were joint rules or specifically required interagency coordination. Regulators told us that the importance of coordination was established early on by their senior leadership, who met shortly after the passage of the Dodd-Frank Act to identify and discuss areas in which interagency coordination could be useful and establish interagency working groups or points of contacts where necessary. For the two rules that required interagency coordination, SEC staff told us that they met with staff from other agencies and provided them with rule-related materials for their review and comment. The staff said that they did not receive any substantive comments and noted that the rules did not potentially duplicate or conflict with any of the other agencies’ rules. While regulators were not required to coordinate on any of the other 16 rules that we reviewed—for example, because the rules were administrative or fell within the exclusive purview of a single regulator—they chose to coordinate or consult with other regulators on seven rules for a variety of reasons. For instance, Section 343 of the Dodd-Frank Act amended the Federal Deposit Insurance Act to provide unlimited deposit insurance for “noninterest-bearing transaction accounts” for a 2-year period. Before issuing its rule to adopt this requirement, FDIC staff told us they had held informal discussions with Federal Reserve Board staff about whether certain types of payments to depositors qualified as interest. FDIC staff told us that no other consultation took place, given that the scope of the proposed rule was minimal. For rules that raised some concerns about duplication or conflict, however, coordination was broader in scope. For example, CFTC, FDIC, and OCC issued separate rules to regulate off-exchange foreign exchange transactions that their regulated entities entered into with retail customers. OCC staff told us that the regulators—including CFTC, Federal Reserve Board, FDIC, NCUA, and SEC—had voluntarily consulted one another before issuing the rule. In discussing the ways in which they had coordinated with other regulators on rulemakings to date, regulators generally described informal processes. For example, to help facilitate coordination, a number of the regulators said that they had identified points of contact at other regulators for specific rules. They used those points of contact to solicit comments on draft proposed rules or obtain other information and data through e-mail or phone calls. Similarly, CFPB staff also said that they had informally consulted with other regulators on rulemaking through conference calls and by sharing portions of draft rules for review. Although federal financial regulators informally coordinated with each other on some of the final rules that we reviewed, most of the regulators lacked written policies and procedures to facilitate interagency coordination. Specifically, seven of nine regulators included in our review did not have written policies and procedures to facilitate coordination on rulemaking. For example, CFPB is in the process of developing policies and procedures for coordination on rulemaking, including how to resolve jurisdictional or other disagreements in rulemaking. As noted earlier, CFPB is required to consult with the appropriate prudential regulators or other federal agencies both before proposing a rule and during the comment process. According to CFPB officials, the Bureau is considering various coordination issues and working to establish policies or procedures to facilitate coordination. CFPB officials noted that they were still setting up CFPB and that many decisions, including how CFPB would coordinate with other regulators, remained to be determined. The officials also said that CFPB was committed to fulfilling the coordination requirements set for it in the Dodd-Frank Act. Moreover, the written policies and procedures that do exist are limited in their scope or applicability. FDIC and OCC are the only two of the nine regulators that have rulemaking policies that include guidance on developing interagency rules. For example, FDIC’s policy manual for developing rules includes a section on developing an interagency rule or statement of policy that describes the roles and responsibilities of the agencies in the process. Similarly, OCC’s rulemaking procedures manual includes guidance on interagency rulemakings and outlines, among other things, how staff will be designated to represent OCC in such rulemakings and the responsibilities of the designated staff. However, neither FDIC’s nor OCC’s policies describe the process for soliciting and addressing other regulators’ comments, including conflicting views. Other regulators have procedures in place that could facilitate coordination, but these procedures are also limited. For instance, FSOC has developed a consultation framework that provides timeframes for holding initial meetings to discuss potential approaches to regulation and circulating term sheets and proposals to enact the regulation. However, the framework applies only to rules for which consultation with FSOC is required. Additionally, SEC and CFTC have a memorandum of understanding that establishes a permanent regulatory liaison between them and contains procedures to facilitate the discussion and coordination of regulatory action on issues of common regulatory interest, such as novel derivative products. Such regulatory actions can include investigations, examinations, and individual rulemakings. Documented policies can help ensure that adequate coordination takes place and help to improve interagency relationships, prevent the duplication of efforts at a time when resources are extremely limited, and avoid the potential for disruptions across financial markets caused by regulatory uncertainty. In prior work, we have identified the establishment of compatible policies and procedures to allow for efficiency of operations across agency boundaries as a best practice for sustaining and enhancing collaborative efforts across federal regulatory agencies. As we have previously reported, the lack of compatible standards, policies, and procedures can hinder collaboration. Given the breadth and scope of the Dodd-Frank Act rulemakings, having documented policies and procedures for interagency coordination is especially important to avoid conflicting or duplicative rules. While FSOC continues to evolve and define its role, FSOC staff noted that its organizational structure helps ensure coordination among its member agencies. First, because FSOC is made up of all the federal financial regulators and other entities, and the regulators are all voting members, it is an interagency body by definition and takes actions on that basis. Second, FSOC staff told us that the council has established committees and subcommittees to help carry out its responsibilities and authorities, further promoting interagency coordination. These groups are comprised of staff from FSOC member agencies and can facilitate informal coordination outside of FSOC’s explicit coordination requirements. For example, the Systemic Risk Committee identified mortgage servicing as a key issue that had interagency implications and was able to get staff from the relevant agencies to work together to prioritize this as a recommended area for regulatory action in the annual report, according to FSOC staff. Third, as FSOC Chairperson, the Secretary of the Treasury can also promote coordination among member agencies. In its 2010 annual report, FSOC noted that its chairperson was playing an active role in coordinating the agencies’ work to draft consistent and comparable regulations to implement the proprietary trading and the joint risk retention rules, as required under the Dodd- Frank Act. In addition to its organizational structure, FSOC also has developed tools to facilitate formal coordination and promote informal coordination among its members. For example, FSOC has developed a consultation framework for the rulemakings for which consultation with FSOC is required. The framework establishes time frames for coordinating three key tasks in these rulemakings: initial interagency meetings, circulation of term sheets for interagency comments, and circulation of proposed rules for interagency comments. In addition, in October 2010 FSOC issued an integrated implementation roadmap for the Dodd-Frank Act that included a comprehensive list of the rules regulators were required to promulgate, provided a timeline for those rulemakings, and identified the agencies responsible for each rulemaking. Although these tools are a positive development in facilitating coordination, they have limited usefulness. For example, although the FSOC consultation framework specifies the time frames for completing major milestones in rulemakings for which consultation with FSOC is required, it does not provide any specifics about staff responsibilities or the processes to be used to facilitate coordination, and FSOC staff told us the framework is not intended to do so. It also applies only to coordination between FSOC and member agencies. Also, the roadmap does not discuss coordination among member agencies. For example, the extent to which interagency coordination is required or what happens when rulemakings conflict with or duplicate each other is not mentioned. Representatives from industry associations told us that FSOC’s coordination efforts in their view generally had not been useful and should be strengthened. For example, according to industry representatives, FSOC has not used its position to help agencies sequence the rules in a logical order to give industry the ability to comment on the rules in a meaningful way. Another coordination body in the federal financial arena is the Federal Financial Institutions Examination Council (FFIEC). FFIEC, established through statute in 1978, is a formal interagency body empowered to prescribe uniform principles, standards, and report forms for the federal examination of financial institutions by the Federal Reserve Board, FDIC, NCUA, OCC, and the State Liaison Committee, and to make recommendations to promote uniformity in the supervision of these financial institutions. The Dodd-Frank Act does not require FFIEC to play a coordinating or consultative role in any of the act’s rulemaking efforts. However, FFIEC has remained abreast of its member agencies’ activities relative to the Dodd-Frank Act through ongoing discussions and interagency coordination of proposed rulemakings required by the act. Federal financial regulators, industry association representatives, and others told us that assessing the actual impact of the Dodd-Frank Act regulations generally is premature for a number of reasons, including the following: Industry representatives and regulators noted that sufficient time has not elapsed to allow for many of the Dodd-Frank Act rules to be fully implemented and, in turn, assessed. Indeed, nearly half of the final Dodd-Frank Act rules that were effective as of July 21, 2011, did not take effect until after July 1, 2011, and will require time to implement. For example, OCC and FDIC separately issued rules to allow banks to engage in foreign-exchange transactions with retail customers that became effective on July 15, 2011. Before engaging in such transactions under the new rules, banks must take a number of actions, such as obtaining permission from their regulators, modifying systems to meet new disclosure and recordkeeping requirements, and establishing and implementing internal rules, procedures, and controls to comply with new trading and operational standards. Referring to the yet-to-be-issued derivatives rules, representatives from a derivatives association and a coalition of various national and state organizations told us that it would take firms a significant amount of time, perhaps years, to set up the infrastructure and develop the systems and models needed to comply with those rules. Additionally, officials from the Federal Reserve Board and two labor unions told us that the impact and associated benefits and costs of the Dodd-Frank Act rules could not be determined until the economy has gone through at least one business cycle. Representatives from a banking association told us that the majority of final rules that were effective as of July 21, 2011, were not expected to have a significant effect—both because of their scope and the relatively small number of them. For example, some of the Dodd-Frank Act rulemakings to date are orders, notices, or similar actions rather than regulations that directly impact regulated institutions and the markets. Industry representatives said that many of the final rules that were in effect as of July 2011 are likely to have minimal impact, but that some of the forthcoming rules would have a significant impact, such as those involving mortgages, derivatives trading and clearing, and consumer financial protection. In addition, representatives from another banking association said that banks are just beginning to understand the rules and that only a fraction of the rules have been finalized. Moreover, Federal Reserve Board officials said that estimating the cumulative impact of the Dodd-Frank Act rules was not yet possible because few of the act’s provisions had taken effect. Some of the final rules are related to rules that are forthcoming; as a result, the impact of these rules needs to be assessed in combination, not in isolation. Regulators have not drafted and issued the rules in an appropriate sequence, in part because of statutory deadlines, creating a situation in which one rule will be affected by another rule that has not yet been proposed. For example, the Federal Reserve Board issued a rule to establish the period within which financial institutions would need to bring their activities and investments into compliance with the Volcker Rule. Authority for developing and adopting regulations to implement the Volcker Rule is divided among the Federal Reserve Board, OCC, FDIC, SEC, and CFTC, but these agencies had not yet proposed such rules as of July 21, 2011. In addition, federal financial regulators are drafting and implementing Basel III and other non-Dodd-Frank Act rules that could have related economic effects on regulated entities. Likely reflecting the early stages of the implementation of the Dodd-Frank Act, our search of several economic journal databases did not identify any retrospective studies that analyzed the economic impact of the Dodd- Frank Act regulations. Some studies that we reviewed prospectively analyzed the potential costs of various aspects of the Dodd-Frank Act but did not seek to quantify the potential benefits. For example, the Congressional Budget Office estimated that the act would increase the federal government’s revenues and direct (or mandatory) spending by $13.4 billion and $10.2 billion, respectively, over the 2010 through 2020 period, and those effects were projected to reduce deficits, on net, by $3.2 billion. Other studies that we reviewed analyzed how effectively the act, and the regulations implemented under it, might address the causes of the recent financial crisis and, in turn, reduce the likelihood of or mitigate future financial crises; but these potential impacts were not quantified. In our future reviews, we will continue to search for and review relevant research on the benefits and costs of Dodd-Frank Act regulations. Federal financial regulators are required to conduct retrospective reviews of their existing rules under various statutes and will include Dodd-Frank Act rules in their future reviews. The Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA) requires FFIEC and its members (FDIC, the Federal Reserve Board, OCC, NCUA, and formerly OTS) to review all existing regulations every 10 years and eliminate (or recommend statutory changes that are needed to eliminate) any regulatory requirements that are outdated, unnecessary, or unduly burdensome. In July 2007, FFIEC reported the results of its members’ most recent EGRPRA review, which was done over a 3-year period ending in December 2006. In conducting their review, the federal banking regulators sought public comment on more than 130 regulations and hosted 16 outreach sessions around the country. During the EGRPRA process, the federal banking agencies undertook various efforts to reduce regulatory burden on institutions that they supervised and regulated—including regulatory changes and efforts to streamline supervisory processes. They also identified four areas to explore further for opportunities to revise regulations—suspicious activity reports, lending limits, the Basel II capital framework, and consumer disclosures. In addition to EGRPRA, Section 610 of RFA requires independent and other regulatory agencies to review within 10 years of publication any of their rules that have a significant economic impact on a substantial number of small entities. The review’s purpose is to determine whether such rules should be maintained, amended, or rescinded to minimize their impact on small entities. Federal banking regulators have conducted separate Section 610 reviews and, as discussed earlier, included such reviews within their broader retrospective reviews done pursuant to EGRPRA. Similarly, SEC has conducted Section 610 reviews. As a matter of policy, SEC reviews all final rules that it publishes for notice and comment to assess their utility and continued compliance with RFA. Although subject to the RFA’s Section 610 requirement, CFPB is also subject to its own retrospective review requirement. Specifically, Section 1022(d) of the Consumer Financial Protection Act of 2010 requires CFPB to assess each of its significant rules to address, among other things, the effectiveness of the rule in meeting the purposes and goals of the act and specific agency goals. CFPB officials told us that they were considering how to conduct their retrospective reviews and were looking at FFIEC’s retrospective reviews as guidance. Federal financial regulators also may review their Dodd-Frank Act regulations in response to the recently issued E.O. 13579. The order notes that independent regulatory agencies should consider how best to promote retrospective analysis of rules that may be outmoded, ineffective, insufficient, or excessively burdensome. It further notes that each agency should develop and release to the public a plan for periodically reviewing its existing significant regulations. Although federal financial regulators are not required to follow E.O. 13579, CFTC and SEC are developing plans to conduct retrospective reviews in light of the order. In a June 2011 Federal Register release, CFTC noted that it had reviewed many of its existing regulations as part of its implementation of the Dodd-Frank Act. After issuing its final Dodd-Frank Act rules, CFTC plans to conduct retrospective reviews of the remainder of its regulations. CFTC asked for public comments on, among other things, what criteria it should use to prioritize the review of existing rules and which of the executive order’s guidelines and principles it should voluntarily adopt. As part of its ongoing efforts to update its regulations and in light of E.O. 13579, SEC issued a release in September 2011, requesting public comments on the development of a plan for retrospective review of its existing significant rules. Specifically, SEC asked what factors it should consider in selecting and prioritizing rules for review and how frequently it should conduct the reviews. SEC also included questions on the availability of data it would need and processes for gathering relevant data and analyses. Although federal financial regulators told us that they planned to conduct retrospective reviews of their Dodd-Frank Act regulations in response to statutory requirements or at their own discretion, some of the regulators we reviewed have not developed plans for such reviews. In our prior work, we identified procedures and practices that could be particularly helpful in improving the effectiveness of retrospective reviews. In particular, we noted that agencies would be better prepared to undertake reviews if they had identified the needed data before beginning a review and, even better, before promulgating the rule. If agencies fail to plan for how they will measure the performance of their rules and how they will obtain the data they need to do so, they may be limited in their ability to accurately measure the progress or true effect of the regulations. For example, by not engaging in advance planning, an agency may realize too late that it lacks the necessary baseline data to assess regulations promulgated years before. By planning ahead, such as what SEC appears to be doing in its retrospective review release, an agency can identify not only potential data collection challenges but also alternative data sources or data collection strategies for conducting the reviews. FSOC has conducted analyses to assess the impact of various provisions and regulations of the Dodd-Frank Act. The act identifies specific areas for FSOC to study (including making recommendations) to help inform rulemaking. These areas include the financial sector concentration limit applicable to large financial firms, proprietary trading and hedge fund activities of banks, and contingent capital for nonbank financial companies. Issued in January 2011, the concentration limit study concluded that the limit was unlikely to have a significant effect on the cost and availability of credit but did not quantify the impact. Also in January 2011, the Chairperson of FSOC issued a study on the economic impact of possible financial services regulatory limitations intended to reduce systemic risk. The study was based largely on existing research and noted that the Dodd-Frank Act undoubtedly had a significant effect but that it was too soon to attempt to quantify its aggregate impact or the specific impact of various provisions. The Chairperson of FSOC is required to conduct a follow-up study every 5 years and recommended that the next study consider the experience of implementing the Dodd- Frank Act and any further original research. FSOC also issued its first annual report in July 2011. The Dodd-Frank Act requires FSOC to issue an annual report that addresses, among other things, (1) significant financial market and regulatory developments; (2) potential emerging threats to the financial stability of the United States; and (3) recommendations to enhance the integrity, efficiency, competitiveness, and stability of U.S. financial markets, promote market discipline, and maintain investor confidence. The 2010 annual report included information and analyses on the U.S. economy and financial system, implementation of the Dodd-Frank Act, and emerging threats to the U.S. financial stability. Consistent with its mandate, FSOC made a series of recommendations to its member agencies and market participants. FSOC recommended heightened risk management and supervisory attention in specific areas, further reforms to address structural vulnerabilities in key markets, steps to address reform of the housing finance market, and coordination on financial regulatory reform. According to FSOC, its recommendations collectively addressed the identified vulnerabilities in the system and emerging threats to financial stability. In light of its statutory requirements, FSOC plans to assess the future impact of significant Dodd-Frank regulations, including those that may not have systemic risk implications. According to FSOC staff, FSOC would not be able to make recommendations—for instance, to improve the integrity, efficiency, competitiveness, and stability of the U.S. financial markets—without considering the impact of the act and its regulations. However, they also noted that was too early for such a review because most of the Dodd-Frank Act rules were not in effect. FSOC staff also said that the council was actively tracking efficiency and competitiveness- related issues and, in conjunction with the Office of Financial Research, developing its research capabilities. According to FSOC staff, FSOC has not directed the Office of Financial Research to begin identifying and collecting the data that will be needed to help FSOC assess the Dodd- Frank Act rules. Rather, at this early stage the Office of Financial Research is focused on ramping up its capabilities with the support of FSOC members. FSOC staff said that they expect the Office of Financial Research to provide more data and analytical support to FSOC in the future. In response to our mandate to analyze the impact of regulations on the financial marketplace, we have begun to construct an analytical framework for doing so when practicable. In developing our framework, we have consulted with regulators, academics, industry associations, and others. These parties recognized the importance of assessing the impact of the Dodd-Frank Act rules or provided us with suggestions on which rules to review and approaches for analyzing such rules. At the same time, many stated that analyzing the impact of the Dodd-Frank Act rules, individually or cumulatively, would be challenging because of the multitude of intervening variables, the complexity of the financial system, data limitations, and the changing economic conditions. One academic has also noted that measuring the costs of financial regulation is challenging in part because the private costs of regulation are difficult to obtain and that measuring the benefits is a more difficult and perhaps intractable challenge. Likewise, we also have reported that measuring the benefits and, to a lesser extent, the cost of financial services regulations historically has posed a number of difficulties and challenges. Given the challenging task at hand, we plan to continue to seek input from the financial regulators, the industry, and others as we move forward in developing our methodology for assessing the impact of Dodd-Frank Act regulations. As part of our framework, we plan to continue to track rules promulgated pursuant to the Dodd-Frank Act and develop methods to conduct preliminary analyses of their potential impact and benefits and costs. For example, we plan to review the benefit-cost analysis, if any, conducted for each rule by the relevant agency. To the extent feasible, we plan to analyze not only the specific impact of selected rules but also the overall impact of the Dodd-Frank Act, using quantitative methods wherever possible. However, it will be difficult to quantify all of the potential impacts, especially those that are expected to materialize over a longer period of time or that require the forecasting of indirect causal relationships. As a result we plan to augment any quantitative analysis we conduct with qualitative assessments to provide information in these areas. We also plan to monitor and report on relevant macroeconomic indicators, some of which will be directly related to the variables enumerated in our mandate. To that end, we are developing criteria for selecting rules for impact analysis and identifying potential methodologies and data sources. Given that the rules are being promulgated on an ongoing basis, we plan to analyze our selected rules on a similar basis once sufficient time has passed. In the immediate future, federal financial regulators will need to craft hundreds of regulations to implement the Dodd-Frank Act’s reforms. The breadth of the issues and the short time frames involved present numerous challenges, including allocating sufficient time and resources to developing and analyzing the potential effects of the rules to identify the regulatory alternative with the greatest net benefits. To find that alternative, regulators would ideally monetize the anticipated benefits and costs of regulations during rulemakings. However, anticipating, evaluating, and measuring the potential impact of financial regulations— especially the potential benefits—historically have proven difficult. Indeed, for the rules we reviewed, monetization of costs largely was limited to paperwork-related costs and excluded other direct and indirect costs, and monetization of benefits was nonexistent. These efforts, while positive, fall short of what could be done to determine the potential costs and benefits of the new rules. The guidelines in OMB Circular A-4 could help in addressing the challenges involved in analyzing the potential costs and benefits. It recognizes that benefits and costs cannot always be monetized or quantified and provides guidance for evaluating their significance when they cannot be. For example, it directs agencies to disclose the strengths and limitations of unquantified benefits and costs, including why they cannot be quantified, and explain the rationale behind a regulatory choice that is made using unquantified information. Although the federal financial regulators are not required to follow this guidance, most of them told us that they did so in spirit or principle. While some regulators had completed some of OMB’s recommended analyses, we also found inconsistencies in the extent to which the analyses—and some rulemaking policies—reflected OMB’s guidance. For example, the regulators’ analyses described the need for regulatory action and described the qualitative benefits and costs of the chosen alternative. However, the analyses did not explain why benefits and costs could not be monetized or quantified and did not discuss the strengths and limitations of the available qualitative information. By taking steps to more fully incorporate OMB’s guidelines in their rulemaking policies and procedures, federal financial regulators could enhance the rigor and transparency of their regulatory analyses. By taking such action, regulators could demonstrate the rationale behind their regulatory decisions and ensure that the alternatives they have chosen are in fact the most cost-beneficial options. Throughout the implementation of the Dodd-Frank Act rules, coordination among the federal financial regulators will be critical because of the breadth of issues addressed and the number of regulators issuing concurrent rules. With adequate and timely coordination, regulators may avoid overlapping, duplicative, or conflicting rules that could create market inefficiencies. We found that regulators had coordinated on some of the rules that were effective as of July 2011. Such coordination is a positive stepping stone for future coordination. However, we also found that most of the coordination, to date, had been informal and ad hoc. We also found that most of the federal financial regulators included in our review, including CFPB, did not have formal policies to guide interagency coordination. While informal and ad hoc coordination can produce the desired results, such coordination can break down when disagreements arise or other work becomes pressing. Formal policies can institutionalize informal coordination practices and provide a framework for coordinating, helping to ensure that regulators are appropriately consulted and that their views, including conflicting viewpoints, are addressed in a consistent and transparent fashion. Given its membership and charge to help facilitate coordination among its member agencies, FSOC is positioned to work with the federal financial regulatory agencies to establish compatible policies that would guide and facilitate interagency coordination among its members throughout the course of Dodd-Frank Act rulemakings. After the regulations are implemented, federal financial regulators will need to revisit their prospective analyses of Dodd-Frank Act regulations in light of actual outcomes to help ensure that the Dodd-Frank Act regulations are achieving their intended purpose without creating unintended consequences that negatively impact the markets. The regulators are required to conduct retrospective reviews of their regulations, including rules issued pursuant to the Dodd-Frank Act in the future. However, some of the regulators have not yet developed plans of how to review their Dodd-Frank Act regulations after they are implemented. The regulators are still in the early stages of their rulemaking processes and have issued only a small number of the required rules, but not establishing baseline data early on could complicate later assessments. As we have found, a common challenge to conducting effective retrospective reviews is the lack of baseline data for assessing regulations promulgated years before. By taking steps during the initial rulemaking to determine how to measure the effects of the Dodd-Frank Act regulations, including determining how and when to collect, analyze, and report needed data, federal financial regulators could better position themselves to conduct effective retrospective reviews. Similarly, under the Dodd-Frank Act, FSOC is also required to conduct periodic studies. As part of these future efforts, FSOC plans to assess significant Dodd-Frank Act regulations, including some that may not have systemic risk implications but could affect the stability, efficiency, or competitiveness of the U.S. financial markets. Opportunities exist for FSOC and its members to leverage and complement each other’s retrospective analyses. To date, however, FSOC has not directed the Office of Financial Research to help it identify and collect the data that will be needed. Such planning efforts are important to help ensure that FSOC can not only accurately measure the impact of significant Dodd-Frank Act regulations but also efficiently coordinate with its members to leverage their retrospective reviews. While the federal financial regulators have begun to take steps to address challenges associated with promulgating hundreds of new rules required under the Dodd-Frank Act, we are making four recommendations aimed at improving the efficiency and effectiveness of these efforts. To strengthen the rigor and transparency of their regulatory analyses, we recommend that the federal financial regulators take steps to better ensure that the specific practices in OMB’s regulatory analysis guidance are more fully incorporated into their rulemaking policies and consistently applied. To enhance interagency coordination on regulations issued pursuant to the Dodd-Frank Act, we recommend that FSOC work with the federal financial regulatory agencies to establish formal coordination policies that clarify issues such as when coordination should occur, the process that will be used to solicit and address comments, and what role FSOC should play in facilitating coordination. To maximize the usefulness of the required retrospective reviews, we recommend that the federal financial regulatory agencies develop plans that determine how they will measure the impact of Dodd-Frank Act regulations—for example, determining how and when to collect, analyze, and report needed data. To effectively carry out its statutory responsibilities, we recommend that FSOC direct the Office of Financial Research to work with its members to identify and collect the data necessary to assess the impact of the Dodd-Frank Act regulations on, among other things, the stability, efficiency, and competitiveness of the U.S. financial markets. We provided a draft of this report to CFPB, CFTC, FDIC, the Federal Reserve Board, FFIEC, FSOC, NCUA, OCC, and SEC for review and comment. CFTC, CFPB, FDIC, the Federal Reserve Board, FSOC, OCC, and SEC provided written comments that we have reprinted in appendixes V through XI, respectively. All of these regulators also provided technical comments, which we have incorporated, as appropriate. FFIEC and NCUA did not provide any comments on the draft report. In their written comments, the regulators generally agreed with our findings and conclusions, and some agreed with the recommendations, while others neither agreed nor disagreed but stated actions they had taken or planned to take regarding the recommendations. For example, in their letters, FDIC and SEC noted the challenges of analyzing the economic impact of financial regulations, but recognized the importance of such analysis as part of the rulemaking process. FDIC, OCC, and SEC also noted that they are not subject to E.O. 12866 and the accompanying OMB guidance, although they each agreed to look for opportunities to more fully incorporate the guidance into their rulemaking process. In addition, CFPB noted its commitment to evidence-based rulemaking, and the Federal Reserve Board said it will consider appropriate ways to incorporate applicable recommendations into its rulemaking efforts. With regard to the recommendation on developing coordination policies, FSOC noted the importance of coordination and said it would consider the recommendations as it continues to improve protocols and CFTC outlined its coordination efforts. In addition, while agreeing that interagency coordination is important, OCC and SEC also noted in their letters that efforts to improve coordination through FSOC must be balanced with the need to ensure that the independence of each regulator is not affected. We agree that the independence of the regulators is vital to their work, and we do not believe working with FSOC and the other regulators to establish formal coordination policies will diminish the regulators’ independence. To the contrary, establishing coordination policies would allow the regulators and FSOC to clarify their roles, including how coordination should take place given the independence of the regulators and their varying missions. We are sending copies of this report to CFPB, CFTC, FDIC, the Federal Reserve Board, FFIEC, FSOC, NCUA, OCC, SEC, interested congressional committees, members, and others. This report will also be available at no charge on our Web site 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 XII. Our objectives in this report were to examine (1) the regulatory analyses, including benefit-cost analyses, federal financial regulators have performed to assess the potential impact of selected final rules issued pursuant to the Dodd-Frank Act; (2) how federal financial regulators consulted with each other in implementing selected final rules issued pursuant to the Dodd-Frank Act to avoid duplication or conflicts; and (3) what is known about the impact of the final Dodd-Frank Act regulations. To address these objectives, we limited our analysis to the final rules issued pursuant to the Dodd-Frank Act that were effective as of July 21, 2011, a total of 32 rules. See appendix III. To identify these rules, we used a Web site maintained by the Federal Reserve Bank of St. Louis that tracks Dodd-Frank Act regulations. We corroborated the data with publicly available information on Dodd-Frank Act rulemaking compiled by the law firm Davis Polk and Wardwell. To address our first objective, we reviewed statutes, regulations, GAO and inspector general studies, and other documentation to identify the benefit-cost or similar analyses federal financial regulators are required to conduct in conjunction with rulemaking. We selected 10 of the 32 rules for further review, comparing the benefit-cost or similar analyses to relevant principles outlined in the Office of Management and Budget’s (OMB) Circular A-4. We selected the rules for further review based primarily on the amount of discretion that agency officials were able to exercise in implementing the specific Dodd-Frank Act provision. To determine agency discretion, we reviewed the Federal Register notices for the agency’s determination of the discretion it was granted. To compare these rules to the principles in Circular A-4, we developed a checklist with the principles and applied the checklist to all 10 rules. In conducting each individual analysis, we reviewed the Federal Register notices and any supplemental benefit-cost or similar data prepared by the agencies during the course of the rulemaking. Based on each individual checklist, we prepared a summary checklist that analyzed the extent to which the rules as a group complied with the Circular A-4 principles. We also interviewed officials from the Commodity Futures Trading Commission, Consumer Financial Protection Bureau, Federal Deposit Insurance Corporation, the Board of Governors of the Federal Reserve System, Financial Stability Oversight Council, National Credit Union Administration, Office of the Comptroller of the Currency, Office of Financial Research, OMB, and Securities and Exchange Commission to determine the extent to which benefit-cost or similar analyses were conducted and whether the analyses were required by statute, regulation, or executive order. Finally, we interviewed officials from the inspectors general of several federal financial regulators; representatives from various industry and other associations, including the American Bankers Association, Americans for Financial Reform, Business Roundtable, Consumer Bankers Association, Futures Industry Association, Independent Community Bankers of America, International Swaps and Derivatives Association, Managed Funds Association, and U.S. Chamber of Commerce; representatives from the American Federation of Labor-Council of Industrial Organizations and Association of Federal, State, County, and Municipal Employees; and others, including academics and consultants, about their views on the benefit-cost analyses being done by federal financial regulators in their Dodd-Frank Act rulemakings. To address our second objective, we reviewed the Dodd-Frank Act, regulations, and studies, including GAO reports, to identify the coordination and consultation requirements federal financial regulators are required to conduct in conjunction with rulemaking. We selected 18 rules for further review—two of which required interagency coordination under the Dodd-Frank Act. We selected the other rules for further review based primarily on our judgment as to whether the rules could have benefited from any interagency coordination or consultation. To make our determination, we looked for regulations involving issues or subject matters that were overseen by multiple federal financial regulators. Among the 32 rules that were effective as of July 21, 2011, we identified three notices and one list that had coordination or consultation requirements. We did not include these agency releases in our review because they are not regulations. We then sent out questionnaires for each of the judgmentally selected rules to staff at the regulatory agencies responsible for promulgating the rules. We compiled and reviewed the completed questionnaires to assess how coordination and consultation were taking place between or among the regulatory agencies. We also interviewed officials from the federal financial regulatory agencies identified above to determine the extent to which coordination occurred during their Dodd-Frank Act rulemaking. We sent questionnaires to each federal financial regulatory agency we interviewed to identify what broad policies and procedures they have developed to facilitate interagency coordination and consultation. In addition, we interviewed industry representatives and others identified in objective one to obtain their views on interagency coordination and consultation in connection with the Dodd-Frank Act rulemakings. To address our third objective, we conducted literature searches to identify academic and other studies that assessed the impact of the Dodd-Frank Act, generally, or its various provisions and regulations, specifically. We reviewed the Federal Register releases for the 32 rules effective as of July 21, 2011, to identify the impact or benefit-cost analysis that the agencies conducted in connection with their rules. For 16 of the 32 rules, we sent questionnaires to the appropriate federal financial regulators to obtain their views on how the rules could impact the six variables enumerated in our mandate, which included the safety and soundness of regulated entities, cost and availability of credit, and costs of compliance with the rules. We also reviewed academic literature to identify potential data sources and methodological approaches and limitations. To identify statutory and other requirements imposed on the federal financial regulators for conducting retrospective or similar reviews of their existing regulations, we reviewed statutes, executive orders, Federal Register releases, and GAO and other reports. Finally, we interviewed the federal financial regulators, industry representatives, and others identified in objective one about the possible data sources and methodological approaches that we could use to analyze the actual impact of the Dodd-Frank Act regulations, individually or cumulatively, in the future and the potential challenges of conducting such analyses. We conducted this performance audit from April 2011 to November 2011 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. This appendix provides information on commonly applicable requirements for regulatory analysis established by statutes. We included those requirements identified by the Dodd-Frank Act rules within the scope of our review for this report and list the requirements chronologically. For each requirement, we summarize the general purpose, applicability to federal financial regulators, and requirements imposed by the initiatives that were relevant to the rules we examined for this report. The Administrative Procedure Act (APA) was enacted in 1946 and established the basic framework of administrative law governing federal agency action, including rulemaking. Section 553 of Title 5, United States Code, governs “notice-and-comment” rulemaking, also referred to as “informal” or “APA rulemaking.” Section 553 generally requires (1) publication of a notice of proposed rulemaking, (2) opportunity for public participation in the rulemaking by submission of written comments, and (3) publication of a final rule and accompanying statement of basis and purpose not less than 30 days before the rule’s effective date. Congresses and Presidents have taken a number of actions to refine and reform this regulatory process since the APA was enacted. APA applies to all federal agencies, including federal financial regulators. The Regulatory Flexibility Act (RFA) was enacted in response to concerns about the effect that federal regulations can have on small entities. The RFA requires independent and other regulatory agencies, including the federal financial regulators, to assess the impact of their rules on “small entities,” defined as including small businesses, small governmental jurisdictions, and certain small not-for-profit organizations. Under the RFA, an agency must prepare an initial regulatory flexibility analysis at the time proposed rules are issued, unless the head of the agency certifies that the proposed rule would not have a “significant economic impact upon a substantial number of small entities.” 5 U.S.C. § 605(b). The analysis must include a consideration of regulatory alternatives that accomplish the stated objectives of the proposed rule and that minimize any significant impact on such entities. However, RFA only requires consideration of such alternatives and an explanation of why alternatives were rejected; the act does not mandate any particular outcome in rulemaking. After the comment period on the proposed rule is closed, the agency must either certify a lack of impact, or prepare a final regulatory flexibility analysis, which among other things, responds to issues raised by public comments on the initial regulatory flexibility analysis. The agencies must make the final analysis available to the public and publish the analysis or a summary of it in the Federal Register. The act also requires agencies to ensure that small entities have an opportunity to participate in the rulemaking process and requires the Chief Counsel of the Small Business Administration’s Office of Advocacy to monitor agencies’ compliance. The RFA applies only to rules for which an agency publishes a notice of proposed rulemaking (or promulgates a final interpretative rule involving the internal revenue laws of the United States), and it does not apply to ratemaking. The Paperwork Reduction Act (PRA) requires agencies to justify any collection of information from the public to minimize the paperwork burden they impose and to maximize the practical utility of the information collected. The act applies to independent and other regulatory agencies, including the federal financial regulators. Under the PRA, agencies are required to submit all proposed information collections to the Office of Information and Regulatory Affairs (OIRA) in the Office of Management and Budget (OMB). Information collections generally cover information obtained from 10 or more sources. In their submissions, agencies must establish the need and intended use of the information, estimate the burden that the collection will impose on respondents, and show that the collection is the least burdensome way to gather the information. Generally, the public must be given a chance to comment on proposed collections of information. 44 U.S.C. § 3506(c), 5 C.F.R. § 1320. At the final rulemaking stage, no additional public notice and opportunity for comment is required, although OMB may direct the agency to publish a notice in the Federal Register notifying the public of OMB review. The Unfunded Mandates Reform Act (UMRA) was enacted to address concerns about federal statutes and regulations that require nonfederal parties to expend resources to achieve legislative goals without being provided funding to cover the costs. UMRA generates information about the nature and size of potential federal mandates but does not preclude the implementation of such mandates. UMRA applies to proposed federal mandates in both legislation and regulations, but it does not apply to rules published by independent regulatory agencies, such as the federal financial regulators. With regard to the regulatory process, UMRA generally requires federal agencies to prepare a written statement containing a “qualitative and quantitative assessment of the anticipated costs and benefits” for any rule that includes a federal mandate that may result in the expenditure of $100 million or more in any 1 year by state, local, and tribal governments in the aggregate, or by the private sector. For such rules, agencies are to identify and consider a reasonable number of regulatory alternatives and from those select the least costly, most cost-effective, or least burdensome alternative that achieves the objectives of the rule (or explain why that alternative was not selected). UMRA also includes a consultation requirement; agencies must develop a process to permit elected officers of state, local, and tribal governments (or their designees) to provide input in the development of regulatory proposals containing significant intergovernmental mandates. UMRA applies only to rules for which an agency publishes a notice of proposed rulemaking. Congress amended RFA in 1996 by enacting the Small Business Regulatory Enforcement Fairness Act (SBREFA). SBREFA included judicial review of compliance with RFA. SBREFA requires agencies to develop one or more compliance guides for each final rule or group of related final rules for which the agency is required to prepare a regulatory flexibility analysis. SBREFA also requires the Environmental Protection Agency, the Occupational Safety and Health Administration, and the Consumer Financial Protection Bureau to convene advocacy review panels before publishing an initial regulatory flexibility analysis. The federal financial regulators are subject to SBREFA. The Congressional Review Act (CRA) was enacted as part of SBREFA in 1996 to better ensure that Congress has an opportunity to review, and possibly reject, rules before they become effective. CRA established expedited procedures by which members of Congress may disapprove agencies’ rules by introducing a resolution of disapproval that, if adopted by both Houses of Congress and signed by the President, can nullify an agency’s rule. CRA applies to rules issued by independent and other regulatory agencies, including the federal financial regulators. CRA requires agencies to file final rules with both Congress and GAO before the rules can become effective. GAO’s role under CRA is to provide Congress with a report on each major rule (rules resulting in or likely to result in a $100 million annual impact on the economy, a major increase in costs or prices, or significant adverse effects on competition, employment, investment, productivity, innovation, or the ability of U.S.- based enterprises to compete with foreign-based enterprises) including GAO’s assessment of the issuing agency’s compliance with the procedural steps required by various acts and executive orders governing the rulemaking process. Rulemaking Deposit Insurance Regulations; Permanent Increase in Standard Coverage Amount; Advertisement of Membership; International Banking; Foreign Banks (75 Fed. Reg. 49363) Display of Official Sign; Permanent Increase in Standard Maximum Share (75 Fed. Reg. 53841) Internal Controls over Financial Reporting in Exchange Act Periodic Reports (75 Fed. Reg. 57385) Commission Guidance Regarding Auditing, Attestation, and Related Professional Practice Standards Related to Brokers and Dealers (75 Fed. Reg. 60616) Removal from Regulation FD of the Exemption for Credit Rating Agencies (75 Fed. Reg. 61050) Regulation of Off-Exchange Retail Foreign Exchange Transactions and Intermediaries (75 Fed. Reg. 55410) Deposit Insurance Regulations: Unlimited Coverage for Noninterest-Bearing Transaction Accounts (75 Fed. Reg. 69577) Designated Reserve Ratio (75 Fed. Reg. 79286) Rules of Practice – Handling of Proposed Rule Changes Submitted by Self-Regulatory Organizations (76 Fed. Reg. 4066) Deposit Insurance Regulations; Unlimited Coverage for Noninterest-Bearing Transaction Accounts; Inclusion of Interest on Lawyers Trust Accounts (76 Fed. Reg. 4813) Issuer Review of Assets in Offerings of Asset-Back Securities (76 Fed. Reg. 4231) Disclosure for Asset-Backed Securities Required by Section 943 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (76 Fed. Reg. 4489) Conformance Period for Entities Engaged in Prohibited Proprietary Trading or Private Equity Fund or Hedge Fund Activities (76 Fed. Reg. 8265) Assessments, Large Bank Pricing (76 Fed. Reg. 10672) Higher Rate Threshold for Escrow Requirements (76 Fed. Reg. 11319) Shareholder Approval of Executive Compensation and Golden Parachute Compensation (76 Fed. Reg. 6010) Establishment of the FDIC Systemic Resolution Advisory Committee (76 Fed. Reg. 25352) Rulemaking Order Directing Funding for the Governmental Accounting Standards Board (76 Fed. Reg. 28247) Share Insurance and Appendix (76 Fed. Reg. 30250) Modification of Treasury Regulations Pursuant to Section 939A of the Dodd- Frank Wall Street Reform and Consumer Protection Act (76 Fed. Reg. 39278) Retail Foreign Exchange Transactions (76 Fed. Reg. 40779) Retail Foreign Exchange Transactions (76 Fed. Reg. 41375) Beneficial Ownership Reporting Requirements and Security-Based Swaps (76 Fed. Reg. 34579) Prohibition Against Payment of Interest on Demand Deposits (76 Fed. Reg. 42015) List of OTS Regulations to be Enforced by the OCC and FDIC Pursuant to the Dodd-Frank Act (76 Fed. Reg. 39246) Office of Thrift Supervision Integration; Dodd-Frank Act Implementation (76 Fed. Reg. 43549) Exemptions for Advisers to Venture Capital Funds, Private Fund Advisers with Less Than $150 Million in Assets under Management, and Foreign Private Advisers (76 Fed. Reg. 39646) Consumer Transfer Protection Date (75 Fed. Reg. 57252) Identification of Enforceable Rules and Orders (76 Fed. Reg. 43569) Consumer Leasing – Exempt Consumer Credit under Regulation M (75 Fed. Reg. 18349) Truth in Lending – Exempt Consumer Credit under Regulation Z (76 Fed. Reg. 18354) Interest on Deposits; Deposit Insurance Coverage (76 Fed. Reg. 41392) No This rule was implemented at the discretion of SEC but was not included among the 10 rules in our regulatory analysis study. We omitted the rule from our study because SEC stated that it readopted existing rules without change in order to preserve the regulatory status quo while agency staff continues to develop proposals to modernize reporting requirements under Exchange Act sections 13(d) and 13(g). This appendix provides case studies on 10 final rules issued pursuant to the Dodd-Frank Act that were effective as of July 21, 2011, and reviewed for this report. At the beginning of each case study is the official rule title as published in the Federal Register. The body of each case study includes a synopsis of the rule; a discussion of the key aspects of the regulatory analysis, including the assessment of the benefits and costs, addressed in the proposed and final rules; the number, nature, and disposition of public comments regarding the regulatory analysis; and identifying information. Rule Synopsis. Provides summary information about the substance and effects of the rule, such as the intent or purpose of the rule, a brief discussion of the rule’s origin, rulemaking history, or regulatory authority upon which the rule was created. Key Aspects of Regulatory Analysis. Identifies generally-applicable rulemaking requirements discussed by the agency in the proposed and final rules as published in the Federal Register. These requirements include identification of the problem addressed by the rule, consideration of alternatives reflecting the range of statutory discretion, the Paperwork Reduction Act (PRA), the Regulatory Flexibility Act (RFA), benefit-cost analysis, and agency-specific statutory requirements. Public Comments. Identifies the total number of public comments received by the agency with respect to the rule and the number, nature, and disposition of public comments regarding the agency’s regulatory analysis. Identifying Information. Identifies the responsible federal agency, citation in the Federal Register of the final rule, and date of the proposed rule and final rule. The Commodity Futures Trading Commission (CFTC) issued the rule to implement provisions of the Dodd-Frank Act, specifically Section 742, and the CFTC Reauthorization Act of 2008 with respect to off-exchange transactions in foreign currency with members of the retail public. The Rule was proposed in January 2010 prior to the enactment of the Dodd- Frank Act, but in final form also implements Section 742 which requires that specified federal regulatory agencies, including CFTC, promulgate rules regarding retail forex transactions. The regulations establish requirements for, among other things, registration, disclosure, recordkeeping, financial reporting, minimum capital, and other operational standards. Identified problem to be addressed by regulation: In addition to regulations expressly called for by the Dodd-Frank Act and CFTC Reauthorization Act, CFTC included additional regulatory requirements prompted both by the essential differences between on- exchange transactions and retail forex transactions, and by the history of fraudulent practices in the retail forex market. Consideration of alternatives reflecting the range of statutory Based on the comments received, CFTC adopted a revised security deposit requirement for futures commission merchants (FCM) and retail foreign exchange dealers (RFED), which, in part, permits security deposit levels within set parameters and provides a mechanism for setting security deposit levels anchored in, and adaptable to, market conditions. CFTC determined that FCMs and RFEDs must provide information regarding profitable or not profitable accounts for the four most recent quarters, and upon request, provide historical quarterly performance for the five most recent years. In response to commenter suggestions, CFTC clarified the definition of “not profitable” to clearly include accounts that break even. While initially proposing that any introducing broker (IB) must enter into a guarantee agreement with an FCM or an RFED, upon reviewing comments, CFTC’s final rule states that IBs who register in order to transact retail forex business can choose between entering into a guarantee agreement with an FCM or RFED, or maintaining the existing IB minimum net capital requirement. CFTC’s final rule implements a $20 million minimum net capital requirement for FCMs engaging in retail forex transactions and for RFEDs, and additional requirements to the extent that an FCM’s or RFED’s total retail forex obligation to its customers exceed $10 million. The rule was adopted without the commenter’s proposed straight-through processing exemption because the proposed additional capital requirement was intended to provide a capital requirement that directly relates to the size of the firm’s liability to retail forex customers and some firms offering retail forex transactions have liabilities to retail customers exceeding $10 million. While some commenters argued a personal responsibility requirement would discourage any individual from taking the position, CFTC’s final rule requires each retail forex counterparty to designate a chief compliance officer. CFTC’s final rule prohibits the making of guarantees against loss to retail foreign exchanges customers by FCMs, RFEDs,and IBs, even though some commenters argued some guarantees should be permissible. While one commenter found the requirement unnecessary, CFTC’s final rule states that RFEDs and FCMs engaging in off- exchange retail forex transactions must close out offsetting long and short positions in a retail forex customer’s account, regardless of whether the customer instructs otherwise. After reviewing comments, the CFTC’s final rule, just as the proposed rule did, created a prohibition against providing a customer a new bid (or asked) price that is higher (or lower) than a previous price without providing a new asked (or bid) price that is higher (or lower) as well. CFTC’s final rule enforces its authority to regulate retail “futures look-alike” forex contracts, as CFTC disagreed with one commenter’s position that such a regulation was not statutorily permissible. After reviewing comments arguing confusion was created by the wording, CFTC’s final rule maintained the definition of retail forex transactions. While some commenters argue such rules are anticompetitive, CFTC’s final rules differ from those applicable to entities engaged in futures transaction on designated contract markets in ways that reflect meaningful differences in the market structure of retail forex transactions. PRA: CFTC determined that this final rule contains information collection requirements within the meaning of the act, which it submitted to the Office of Management and Budget (OMB). CFTC estimated that the total estimated reporting burden for regulated entities subject to the regulation would be approximately 222,000 hours. RFA: CFTC determined that the regulation would not have a significant impact on a substantial number of small entities. Benefits or costs monetized? Estimated impacts (in millions) Qualitative description of the benefits or costs? Benefits Enhance protection of market participants and the public. Comparable regulatory regimes for FCMs and RFEDs. Comparable regulatory regime to on-exchange forex transactions. Requires sound risk management practices. Oversight of forex counterparties and intermediaries. Costs Preparing and filing required disclosures. N/A = not applicable. The Dodd-Frank Act provides the Federal Deposit Insurance Corporation (FDIC) with greater authority to manage the Deposit Insurance Fund (DIF), including where to set the designated reserve ratio (DRR). Section 334 of the act sets the minimum DRR at 1.35 percent (from the former of 1.15 percent) and removes the previous upper limit, which was set at 1.5 percent. Section 334 of the act also requires the DRR to reach 1.35 percent by September 30, 2020, and Section 332 removes the requirement of FDIC to pay dividends when the ratio is between 1.35 percent and 1.5 percent. Pursuant to the requirements and authority within the Dodd-Frank Act, FDIC is adopting a DRR of 2 percent. Ultimately, FDIC will maintain at least 2 percent in the fund, as the 2 percent fund goal is a long-range, minimum target. FDIC also will adopt a progressively lower assessment rate schedule when the reserve ratio exceeds 2 percent and 2.5 percent. The progressively lower rates will essentially serve the function of dividend payments. Identified problem to be addressed by regulation: FDIC is increasing the DRR to ensure DIF is able to keep a positive balance during a future crisis of the magnitude of the 2007-2009 financial crisis. Additionally, it sets rate schedules that are consistent and moderate throughout economic and credit cycles. Consideration of alternatives reflecting the range of statutory FDIC considered commenter positions encouraging a lower DRR but determined a 2 percent DRR at a minimum would allow the fund to survive the crisis of an economic downturn. PRA: FDIC did not conduct a PRA analysis because no collection of information is required for this rule. RFA: FDIC conducted an analysis and concluded that DRR has no significant economic impact on small entities for purposes of RFA. Were the benefits or costs monetized? Estimated impacts (in millions) Qualitative description of the benefits or costs? Benefits Prevent DIF from becoming negative during a future financial crisis. Reduce procyclicality in the existing risk-based assessment rates. Costs Loss of funds that could be used by the banking system. Increased competitive imbalances between banking entities and credit unions. N/A = not applicable. Number of days to comment: 30 Number of comments received: 4 Comments regarding regulatory analysis: Commenters expressed concerns that FDIC’s analysis ignored historical over-reserving, to which FDIC responded that its analysis encompassed reported contingent loss reserves, and emphasized the importance of public confidence as a reason that the fund be significantly positive and not just not negative. One commenter argued that the analysis failed to account for interest income from the reserve. FDIC responded that interest income was included along with an explanation of the cyclical nature of stable times interrupted by periods of high loss which significantly decrease the fund. Section 945 of the Dodd-Frank Act mandated that the Securities and Exchange Commission (SEC) issue a rule relating to the registration statement required by issuers of asset-backed securities (“ABS”). The rule must require issuers of asset-backed securities to perform a review of the assets underlying the asset-backed security and disclose the nature of the review. To implement Section 945 of the Dodd-Frank Act, SEC adopted a new rule under the Securities Act of 1933 and amendments to Regulation AB. The rule requires an issuer of registered offerings of asset-backed securities to perform a review of the assets underlying the securities that “must be designed and effected to provide reasonable assurances that the disclosure regarding the pool assets in the prospectus is accurate in all material respects.” The Regulation requires disclosure regarding: “he nature of the review of assets conducted by an issuer”; “he findings and conclusions of a review of assets conducted by an issuer or third party”; “isclosure regarding assets in the pool that do not meet the underwriting standards”; and “isclosure regarding which entity determined that the assets should be included in the pool….” Identified problem to be addressed by regulation: Section 945 of the Dodd-Frank Act reflects the testimony provided to Congress that due diligence practices in ABS offerings had eroded significantly. Consideration of alternatives reflecting the range of statutory SEC considered the entity which must conduct a review, and upon reviewing comments, determined that the asset review must be conducted by the issuer of the asset-backed security. However, the review only applies to issuers of asset-backed securities in registered offerings, and excludes those in unregistered offerings. Upon review of alternative review standards, SEC adopted minimum review standards based on flexible, principles-based standards that “would be workable across a wide variety of asset classes and issuers.” However, the particular type of review the issuer must perform is not specified. SEC reviewed comments regarding the applicability and impact of third parties conducting reviews. Ultimately, SEC determined an issuer may, but is not required, to rely on a third-party to conduct the review. However, if the issuer attributes the review’s findings and conclusion to the third party, the third party must be named in the registration statement and be treated as an expert. But the issuer can use the same findings and attribute the findings and conclusions to the issuer to avoid needing to obtain the third party’s consent to be named an expert. SEC requires the issuer to (i) disclose the nature of the review including if it is conducted by a third party, the scope of the review; (ii) disclose the findings and conclusions; and (iii) disclose how the assets in the pool deviate from the disclosed criteria and name the entity that made the decision to include the exception loans in the pool. PRA: SEC determined that this final rule contains information collection requirements within the meaning of the act, which it submitted to OMB. The requirements are entitled “Form S-1” (OMB Control Number 3235-0065), “Regulation S-K” (OMB Control Number 3235-0071), and “Rule S-3” (OMB Control Number 3235-0073). SEC estimates an increase in burden hours with Form S-1 and S-3 of about 7,000 hours and $8.4 million. Form S-K will not impose any separate burden. RFA: The Commission certified in the proposing release that the regulation would not have a significant impact on a substantial number of small entities. The Commission requested written comment regarding the certification, but no commenter responded to the request. Were the benefits or costs monetized? Estimated impacts (in millions) Alternative description of the benefits or costs? Reduce the cost of information asymmetry. Allow investors to more accurately price a securitization of the asset pool. Allow investors to better understand the credit risk of the asset pool. More loan pools that conform to the disclosures. No Assist rating agencies in assigning more informed credit ratings. The third party expert liability could increase the quality of the review. Costs Some issuers may incur additional costs to perform more extensive reviews. Some issuers, who otherwise may have performed a more thorough review, may choose to accomplish no more than the minimum required review. Expert liability may increase the cost of due diligence, which could render securitizations non- economic for some issuers. Some asset classes may not have third party due diligence providers. Third party review firms are not registered with the SEC and some are not subject to professional standards. Incremental professional costs of the collection of information through forms S-1 and S-3. N/A = not applicable. Burden on Competition and Promotion of Efficiency, Competition, and Capital: According to SEC, the regulation and amendments are designed to improve investor protection, the quality of the assets underlying an ABS, and increase transparency to market participants. SEC also states that the amendments would improve investors’ confidence in ABS and help recovery in the ABS market with attendant positive effects on efficiency, competition and capital formation. Number of days to comment: 33 days Number of comments received: Over 50 Comments regarding regulatory analysis: Some commenters suggested including unregistered offering within the requirement to prevent abuses from migrating to those offerings. Others argued that the rules should apply only to registered ABS offerings. Some commenters stated that there are incentives not to conduct adequate due diligence, which supports the need for a minimum standard requirement by law. One commenter predicted that requiring third parties to be named in the registration statement as experts will materially impact the cost of due diligence services which will likely render securitizations non-economic for issuers. Some commenters stated that it is possible that third parties engaged by issuers to perform the review may be unwilling to consent to being named in the registration statement as experts. Section 943 of the Dodd-Frank Act requires SEC to prescribe regulations on the use of representations and warranties in the market for asset- backed securities (ABS). The rule requires ABS securitizers to disclose fulfilled and unfulfilled repurchase requests. Specifically, ABS securitizers must disclose demand, repurchase and replacement history for an initial 3-year look back period ending December 31, 2011, and going forward on a quarterly basis. Further, ABS issuers must disclose demand, repurchase and replacement history for the same 3-year look back period in the body of the prospectus, and in periodic reports filed going forward. The rule also requires nationally recognized statistical rating organizations (NRSRO) to include information regarding the representations, warranties and enforcement mechanisms available to investors in an ABS offering in any report accompanying a credit rating issued in connection with such offering, including a preliminary credit rating. Identified problem to be addressed by regulation: According to SEC, the effectiveness of the contractual provisions related to representations and warranties has been questioned and lack of responsiveness by sponsors to potential breaches of the representations and warranties relating to the pool assets has been the subject of investor complaint. Consideration of alternatives reflecting the range of statutory Upon reviewing comments detailing impacts of duplicative filing, SEC required all securitizers to complete the transaction file Form ABS-15G, unless they are affiliated securitizers. While some commenters discouraged inclusion of municipal securitizers, the final rules applies to municipal securitizers but provides delayed compliance to permit municipal securitizers time to observe how the rule operates for other securitizers and to better prepare for implementation of the rule. SEC finalized disclosure form requirements including several changes from the proposed forms based on comments including one commenter’s suggestion to insert a column to disclose the number of outstanding principal balance and percentage of principal balance of the assets originated by each originator in the pool. SEC finalized a 3-year historical look back time frame by balancing commenter suggestions regarding the hardships of collecting data for a more lengthy historical period against the benefit to investors. Additionally, SEC adopted a quarterly reporting time frame for filing requirements instead of the proposed monthly time frame based on comments. SEC amended the Regulation AB transaction disclosure requirements and included phasing in periods for inclusion in the prospectus. Upon reviewing commenters’ reasons for a standard, SEC’s final rule permitted the NRSROs to determine what similar securities should be used in the disclosure comparison. Similarly, SEC reviewed comments with regard to other NRSRO disclosure requirements. PRA: SEC determined that this final rule contains information collection requirements within the meaning of the act, which it submitted to OMB. The requirements are entitled “Form ABS-15G” (a new information collection requirement), “Regulation S-K” (OMB Control Number 3235-0071), and “Rule 17g-7” (a new information collection requirement). SEC estimates the total internal burden hours associated with Form ABS-15G will be 189,068 and the total external costs will be $25,209,000. SEC determined that Regulation S-K will not impose any separate burden. SEC estimates that it will take a total of 90,948 hours annually to comply with the Rule 17g-7 requirements, but no professional costs were associated. RFA: The Commission certified in the proposing release that the regulation would not have a significant impact on a substantial number of small entities. The Commission requested written comment regarding the certification, but no commenter responded to the request. Benefits or costs monetized? Estimated impacts (in millions) Qualitative description of the benefits or costs? Benefits Provide demand, repurchase, and replacement information that is easy to use and compare across securitizers. Initial 3-year look back period should allow investors to identify originators with underwriting deficiencies. Quarterly report includes information for current quarter only so investors will have flexibility to track activity over periods of their choosing. Securitizer may suspend quarterly obligation if it has no reportable activity. Cross-affiliates need not file same disclosures for a particular transaction. Disclosures filed on EDGAR or EMMA create centralized repository. One-year transition period for securitizers, and additional 3-year transition for municipal securitizers, to better prepare. Disclosures in prospectus and periodic reports under Regulation AB will facilitate investor use of information. Disclosures about representations by NRSROs will provide information before investment decision. Costs External professional costs for preparing and filing required disclosures. Transition periods will delay availability of current information to investors. Data collection for initial 3-year look back period may be costly. Investors wanting cumulative data will need to make additional efforts to compile it. Investors wanting information about affiliated transactions will need to compile it. N/A = not applicable. Burden on Competition and Promotion of Efficiency, Competition, and Capital: SEC determined that the ultimate effect of the regulation would be that of better allocative efficiency and improved capital formation. Because the rules generally apply equally to all securitizers, and ABS transactions, SEC did not believe the rules would have an impact on competition. Number of days to comment: 42 Number of comments received: over 40 Comments regarding regulatory analysis: Commenters provided suggestions for the transition time frame varying from 6 months to 2 years from the effective date of the rule. One commenter argued that the PRA estimate for Rule 17g-7 underestimated the time needed to gather required information, but SEC found that the commenter overlooked additional agency analysis of the time requirements and thus made no change. Section 619(c)(2) of the Dodd-Frank Act generally requires banking entities and nonbank financial holding companies supervised by the Board of Governors of the Federal Reserve System (Board) to conform their activities and investments to the restrictions of Section 619 (Volcker Rule) within 2 years of the effective date of the Volcker Rule’s requirements. The Volcker Rule generally prohibits banking entities from engaging in proprietary trading or from investing in, sponsoring or having certain relationship with a hedge fund or private equity fund. The final rule details the provisions and requirements a banking entity or nonbank financial company supervised by the Board must follow to request an extension of time to conform its activities to the Volcker Rule. Number of days to comment: 45 Number of comments received: 12 Comments regarding regulatory analysis: Some commenters argued that the PRA estimate underestimated the time needed to prepare a request for an extension and relevant supporting information. One commenter specifically noted that a banking entity could potentially have to submit up to four extension requests with respect to a single illiquid fund. In light of those comments, the Board revised its initial request from 1 to 3 hours and estimates that each of the 720 banking entities that are estimated to file an extension will file, on average, 10 requests, for a total estimated annual burden of 21,600 hours. This is in contrast to the initial estimate amount of annual burden of 720 hours. FDIC charges insured depository institutions an amount for deposit insurance equal to the deposit insurance assessment base multiplied by a risk-based assessment rate. The Dodd-Frank Act directs FDIC to amend its regulations to define the assessment base used for calculating deposit insurance assessments. The Dodd-Frank Act requires that the assessment base be defined as an institution’s “average consolidated total assets” minus “average tangible equity.” The rule defines the methodology for calculating these amounts, determines the basis for reporting the amounts, and defines “tangible equity.” The Dodd-Frank Act also requires that FDIC determine whether and to what extent adjustments to the assessment base are appropriate for banker’s banks and custodial banks. The rule outlines these adjustments and provides a definition of “custodial bank.” Due to the change in the assessment base, FDIC also defines certain adjustments to the assessment calculation that were added to better account for risks among insured depository institutions (IDI) based on their funding sources. The required change in the assessment base prompted FDIC to modify its assessment rate system and assessment rate schedule. The Dodd-Frank Act also continued FDIC authority to declare dividends when the reserve ratio of the deposit insurance fund (DIF) is at least 1.5 percent and granted FDIC authority to suspend or limit dividends from the DIF. The rule provides that dividends be suspended indefinitely when the DIF reserve ratio exceeds 1.5 percent. The rule also amends the assessment system applicable to large insured depository institutions. Identified problem to be addressed by regulation: According to FDIC, the purpose of the regulation is to address requirements under the Dodd-Frank Act and to provide a revised assessment rate schedule. The overall FDIC goal is increasing the designated reserve ratio (DRR) to ensure DIF maintains a positive balance during a future crisis of the magnitude of the 2007-2009 financial crisis. Additionally, the goal is to set rate schedules that are consistent and moderate throughout economic and credit cycles. Consideration of alternatives reflecting the range of statutory FDIC determined that goodwill and intangibles should not be deducted in determining average consolidated total assets. FDIC considered comments addressing the timing of requirements for IDI reporting of consolidated total equity and average tangible equity and imposed more frequent reporting requirements on larger institutions. FDIC determined that transactions between affiliated banks should not be excluded from the assessment base. FDIC considered and rejected comments concerning the deductions from the assessment base for banker’s banks and amended the calculation of the assessment base adjustment for custodial banks. FDIC considered comments on adjustments to the rate base based on the amount of unsecured debt and the amount of brokered deposits held by the institution. In the proposed rule, FDIC had proposed suspending dividends from the DIF “permanently.” The final rule modified the proposal by suspending dividends “indefinitely” and noted that the rule is not intended to, and could not, abrogate the authority of future FDIC Boards of Directors to adopt a different rule governing dividends. FDIC considered comments concerning the appropriateness of the changes to the assessment rate schedule and the speed at which these rates would restore the DIF to the desired level. The FDIC also considered comments on future rate schedules and their effect on the DIF. The regulation amends the assessment system applicable to large IDIs by using scorecards designed to assess the risk that a large IDI poses to the DIF by measuring its financial performance and its ability to withstand stress and the relative magnitude of potential losses to the FDIC in the event of a large institutional failure. The scorecard combines CAMELS ratings and certain financial measures into two scorecards—one for most large IDIs and another for highly complex IDIs. Commenters questioned the structure and the complexity of the large bank assessment system. FDIC also received and considered a number of comments related to scorecard measures and assumptions. FDIC retains the ability to adjust the scorecard results for large and highly complex institutions based on significant risk factors not captured in the scorecards. Commenters questioned the scale and the need for this adjustment. PRA: FDIC did not conduct a PRA analysis because no collection of information is required for this rule. RFA: FDIC determined that the rule would not be subject to the RFA requirements under the exclusion for rules of particular applicability relating to rates or corporate or financial structures, or practices relating to such rates or structures. FDIC noted that the final rule relates to the rates imposed on insured depository institutions for deposit insurance, to the risk-based assessment system components that measure risk and weigh risk in determining an insured depository institution’s assessment rate and to the assessment base on which rates are charged and concluded that a regulatory flexibility analysis is not required. However, FDIC still conducted an analysis and concluded that the new assessment base and rates would reduce the quarterly assessment on 99 percent of small institutions by an average of $10,320 and would reduce the percentage of assessments borne by small institutions. Were the benefits or costs monetized? Estimated impacts (in millions) Qualitative description of the benefits or costs? Benefits Prevent the DIF from becoming negative during a future crisis of a similar magnitude of the 2007-2009 financial crisis. Reduce procyclicality in the existing risk-based assessment rates. Costs Initial cost for large institutions to transition their systems in order to report the information necessary. Initial transaction cost to all IDIs to calculate new assessment base. N/A = not applicable. Number of days to comment: 47 Number of comments received: 55 Comments regarding regulatory analysis: Several commentators questioned the validity of the statistical analysis of the rule because it was calibrated using data on small bank failures and would reflect the risks or behaviors of large institutions. FDIC responded that it did not use small bank data, but used statistical techniques to acquire data from large institutions. One commentator expressed concern that the analysis focused on historical information, and may not be relevant to future events. In response, FDIC recognized that any statistical analysis is backward-looking but that historical data provides the best means for analyzing future risk. A few commentators suggested errors in FDIC’s analysis. FDIC stated that their analysis has proven accurate in predicting failures from 2006 through 2009. Section 951 of the Dodd-Frank Act amends the Securities Exchange Act of 1934, requiring publicly traded companies to conduct a separate shareholder advisory vote on compensation for executives at least every three years and a vote on the frequency of these votes at least every six years. The amendment also requires a shareholder advisory vote on whether to approve certain so-called ‘‘golden parachute’’ compensation arrangements in connection with a business combination. Section 951 provides that SEC may exempt an issuer from the advisory voting requirements. In determining whether to make an exemption, SEC is to take into account, among other considerations, whether the requirements disproportionately burden small issuers. The rule requires a separate shareholder vote on compensation of executives and a vote on the frequency of these votes for the first annual or other meeting of shareholders occurring on or after January 21, 2011. Identified problem to be addressed by regulation: The proposed and final rules do not state the problem being addressed beyond stating that the rule is designed to implement the requirements of Section 951 of the Dodd-Frank Act. Consideration of alternatives reflecting the range of statutory The rule does not provide any specific language or resolution format for the advisory vote on executive compensation, but the rules provide that the proposal must include language indicating that the vote is on compensation paid to named executive officers and include a non-exclusive example of a resolution that satisfies the requirements. Companies may solicit shareholder votes on a range of compensation matters to obtain specific feedback on the company’s compensation policies and programs. Results of the advisory votes on executive compensation and the vote frequency must be disclosed within four business days after the meeting at which the vote is held. The rule clarifies that the advisory vote on executive compensation is required only at shareholders meetings at which proxies will be solicited for the election of directors, or a special meeting in lieu of such meeting, and the vote is required not less frequently than every 3 calendar years. The vote on frequency is required not less than every 6 calendar years. SEC determined not to exempt smaller reporting companies from the advisory votes, but companies with a public float of less than $75 million are not required to comply with the advisory votes on executive compensation or frequency of such votes until January 21, 2013. The exemption does not apply to the rules applicable to golden parachute packages. Companies must disclose decisions regarding how frequently they will conduct the executive compensation advisory votes in light of the results of the vote on frequency. Companies must disclose whether and, if so, how they have considered the most recent vote and how that consideration has affected their executive compensation policies and decisions. The rule generally requires disclosure of executive officers’ golden parachute arrangements in proxy or consent solicitations seeking shareholder approval in connection with an acquisition, merger, consolidation, or proposed sale or other disposition of all or substantially all of the assets. Golden parachute arrangements between the acquiring company and the named executive officers of the target company are not required to be subject to a vote. Disclosure of golden parachute arrangements related to the transaction must be in both tabular and narrative format. The regulation specified the content of the disclosures, including identification of types of compensation and that disclosure is required only for amounts payable in connection with the transaction subject to shareholder approval. The rule requires disclosure of golden parachute compensation in connection with certain going-private transactions, tender offers and certain other transactions. The rule requires issuers to conduct a separate shareholder advisory vote on golden parachute compensation required to be disclosed in connection with mergers and similar transactions. Issuers will not be required to include in the merger proxy a separate shareholder vote if the compensation has previously been included in the company’s disclosures that were subject to a prior advisory vote. A shareholder vote to approve executive compensation for companies that received financial assistance under the Troubled Asset Relief Program satisfies the requirement to conduct a shareholder advisory vote on executive compensation. PRA: SEC determined that this final rule contains information collection requirements within the meaning of the act, which it submitted to OMB. The title for the collection of information is: “Form 8-K,” “Form 10,” “Regulation 14A and Schedule 14A,” “Regulation 14C and Schedule 14C,” “Reg. S-K,” “Form S-1,” “Form S-4,” “Form S-11,” “Schedule TO,” “Form F-4,” “Schedule 14D-9,” “Schedule 13E- 3,” and “Form N-2.” The new rules will increase existing disclosure burdens for proxy statements, registration statements, solicitation/recommendation statements, and going-private schedules. The new rules also will increase disclosure burdens for current reports on Form 8-K. SEC estimates the total internal burden hours associated with reporting required for the executive compensation advisory vote, and the vote for the frequency of executive compensation votes will be 20,713 and the total external costs will be $2,766,800. SEC estimates that the internal hours required to report on advisory votes for “golden parachute” compensation is estimated at 4,229 and total external costs will be $5,074,400. RFA: SEC decided to provide a 2-year exemption period for smaller reporting companies, generally defined as issuers with public float of less than $75 million. This exemption does not apply to “golden parachute” advisory votes. SEC determined that the rule would affect some companies that are small entities. Were the benefits or costs monetized? Estimated impacts (in millions) Qualitative description of the benefits or costs? Benefits Provide timely information to shareholders about issuer’s plans for future shareholder advisory votes. Provide potentially useful information for voting and investment decisions. Reduces confusion and burden for issuers with outstanding TARP indebtedness by specifying that two separate annual shareholder votes are not required. Benefit smaller reporting companies by providing them a 2-year delayed compliance date. Reduce confusion among shareholders and issuers regarding advisory votes and preserve the ability of shareholders to make proposals on executive compensation. Provide more detailed, useful and comprehensive information to shareholders regarding golden parachute compensation. Disclosure of golden parachute compensation will allow timely and more accurate assessment of the combination transaction and evaluation of the compensation. Eliminate uncertainty among issuers and other market participants regarding what is necessary to under the SEC proxy rules when conducting a required shareholder vote. Costs Reporting costs of new disclosure requirements. Indirect costs related to obtaining compensation information. Possible increased costs for companies in connection with going-private transactions or as targets in third-party tender offers. Additional costs for private companies to takeover public companies. Increased cost associated with drafting disclosure of results of shareholder votes and any effect on compensation policies. N/A = not applicable. Burden on Competition and Promotion of Efficiency, Competition, and Capital: According to SEC, the increased transparency will allow investors to make informed voting and investment decisions, leading to increased efficiency and competitiveness in U.S. capital markets. SEC states that the reporting rules will be applied consistently across different types of transactions, thus ensuring competition. Number of days to comment: 31 Number of comments received: 66 Comments regarding regulatory analysis: One commenter argued that SEC left out potential costs associated with the rule, specifically costs associated with proxy advisory firms, the potential for companies to retain additional consulting services relating to their compensation decisions and say-on-pay votes, additional costs associated with submitting no- action letter requests under Rule 14a–8, and increased costs due to increased demand for proxy solicitation and other shareholder communications services. SEC decided these additional costs will not arise as a result of the rule, but instead as a result of requirements under new Section 14A of the Exchange Act. The final rule imposes requirements for foreign currency futures, options on futures, and options that an insured depository institution supervised by FDIC engages in with retail customers. The final rule also imposes requirements on other foreign currency transactions that are functionally or economically similar, including so-called ‘‘rolling spot’’ transactions that an individual enters into with insured depository institution, usually through the Internet or other electronic platform, to transact in foreign currency. The regulations do not apply to traditional foreign currency forwards, spots, or swap transactions that an insured depository institution engages in with business customers to hedge foreign exchange risk. Institutions must seek approval before engaging in a retail forex business by providing FDIC with written notice and obtaining FDIC’s written consent. The institution must comply with capital and operational standards and have in place policies and procedures to prevent unfair trade practices and ensure fair settlement practices. FDIC’s rule is modeled on CFTC’s similar rule for retail foreign exchange transactions and is substantially similar to retail forex rules adopted by OCC and proposed by the Federal Reserve. This rule authorizes national banks, federal branches and agencies of foreign banks, and their operating subsidiaries to engage in off-exchange transactions in foreign currency with retail customers. The rule also describes various requirements with which national banks, federal branches and agencies of foreign banks, and their operating subsidiaries must comply to conduct such transactions. The rule is modeled on CFTC’s similar rule for retail foreign exchange transactions and is similar to FDIC’s rule. Identified problem to be addressed by regulation: The Dodd-Frank Act provided that a U.S. financial institution for which there is a federal financial regulator shall not enter into an off-exchange foreign exchange transaction with a retail customer except pursuant to a rule or regulation of a relevant federal regulatory agency allowing the transaction. This rule details the appropriate requirements with regards to disclosure, recordkeeping, capital and margin, reporting, business conduct, and documentation requirements that the Office of the Comptroller of the Currency (OCC) determined were necessary to protect retail customers from fraudulent practices. Consideration of alternatives reflecting the range of statutory Nature of disclosure, recordkeeping, capital and margin reporting, business conduct, and documentation requirements OCC determined that the Interagency Statement on Retail Sales of Nondeposit Investment Products applied to retail forex transactions. OCC determined that the retail forex rule should not apply to national banks’ foreign branches conducting retail forex transactions abroad because they are subject to any applicable disclosure, recordkeeping, capital, margin, reporting, and other requirements of applicable foreign law. OCC determined that leveraged, margined, or bank-financed forex forwards (including rolling spot forex transactions) should be regulated as retail forex transactions and included a provision in the final rule that allows OCC to exempt specific transactions or kinds of transactions from the definition of “retail forex transaction.” A leveraged, margined or bank-financed forex forward is a retail forex transaction unless it creates an enforceable obligation to deliver between a seller and a buyer that have the ability to deliver and accept delivery, respectively, in connection with their line of business. OCC determined that a national bank is required to close out offsetting long and short positions in a retail forex account, but that a customer should be able to offset retail forex transaction in a particular manner, if he or she so chooses. Identified banking products are excluded from the definition of “retail forex transaction.” OCC required disclosure of the percentage of profitable retail forex accounts and requires that the risk disclosure statement include a disclosure that when a retail customer loses money trading, the dealer makes money. OCC considered comments on required margin and permitted a national bank to place margin collected from retail forex customers into an omnibus or commingled account and required that the margin account be marked to market daily. OCC agreed with a commenter that monthly statements may be provide electronically. OCC agreed with a commenter and allowed customer authorization to effect a particular trade to be provided in writing or orally. National banks must establish reasonable policies, procedures, and controls to address front running. Effective firewalls and information barriers are reasonable policies, procedures, and controls. OCC determined that rather than allow requoting a national bank may reject orders and request that a customer submit a new order. PRA: OCC determined that this final rule contains information collection requirements within the meaning of the act, and therefore submitted the rule to OMB for review. The requirements are broken down into information collection requirements in Sections 48.4-48.7, 48.9-48.10, 48.13, and 48.15-48.16, reporting requirements under Section 48.4, disclosure requirements under Sections 48.5, 48.6, 48.10, 48.13(b), 48.13(c), 48.13(d), 48.15, and 48.16, and recordkeeping requirements under Sections 48.7, 48.13(a), and 48.9. OCC estimated the total reporting burden of the rule to be 672 hours, the total disclosure burden to be 54,166 hours, the total recordkeeping burden to be 12,416 hours, and the total annual burden to be 67,254 hours. RFA: OCC determined that the regulation would not have a significant impact on a substantial number of small entities. Therefore, a RFA was not required and not completed. Were the benefits or costs monetized? Estimated impacts (in millions) Qualitative description of the benefits or costs? Costs Provide the OCC with prior notice and obtain a written no-objection letter. Modify retail forex agreements to include the required customer dispute disclosure. Modify systems to enable the bank to disclose the ratio of profitable accounts. Establish or modify policies and procedures for customer due diligence and recordkeeping. Modify account statements to comply with the customer reporting requirements in §48.10. Establish and implement internal rules, procedures, and controls to comply with trading and operational standards in §48.13. Modify systems to comply with trading and operational standards. Establish or modify systems and policies and procedures to comply with the margin requirements in §48.9. N/A = not applicable. Unfunded Mandates Reform Act of 1995: OCC determined that the rule will not result in expenditures by state, local, and tribal governments, or by the private sector, of $100 million or more in any 1 year. Accordingly, the rule is not subject to Section 202 of the Unfunded Mandates Act. Congressional Review Act (CRA): OCC determined that the regulation did not and was not likely to result in a $100 million or more annual economic effect and, therefore, was not a “major rule” under the CRA. Prior to enactment of the Dodd-Frank Act, many investment advisers relied on an exemption to registration under the Advisers Act for “private advisers” who had fewer than 15 clients and met other criteria. The Dodd- Frank Act eliminated this exemption, which will result in additional investment advisers registering with SEC. The repeal of the exemption was primarily designed to require advisers to “private funds” to register with SEC. Private funds include hedge funds, private equity funds and certain other types of privately offered pooled investment vehicles that are excluded from the definition of “investment company” under the Investment Company Act of 1940. The Dodd-Frank Act provides a registration exemption for an investment adviser that solely advises “venture capital funds” and directs SEC to define “venture capital fund.” Additionally, the Dodd-Frank Act directs SEC to provide an exemption from registration for any investment adviser that solely advises private funds if the adviser has assets under management in the United States of less than $150 million. The Dodd- Frank Act requires that SEC require advisers relying on these two exemptions to maintain records and make reports “as the Commission determines necessary or appropriate in the public interest or for the protection of investors.” SEC adopted reporting requirements for advisers relying on these exemptions in a separate rulemaking. The Dodd-Frank Act also provides an exemption for foreign private advisers, which are defined in the Advisers Act as investment advisers that, among other things, have no place of business in the United States, have fewer than 15 clients in the United States and investors in the United States in private funds advised by the adviser, and have less than $25 million in aggregate assets under management from such clients and investors. SEC adopted three rules to address the exemptions. The first rule implements the venture capital exemption by defining a venture capital fund generally as a private fund that: (1) holds no more than 20 percent of the fund’s capital commitments in non-qualifying investments (other than short-term holdings); (2) with limited exceptions does not borrow or otherwise incur leverage except on a short-term basis; (3) generally does not offer its investors redemption or other similar liquidity rights; (4) represents itself as pursuing a venture capital strategy to investors; and (5) is not registered under the Investment Company Act. Pre-existing funds can also rely on the grandfathering provision if they represent themselves as pursuing a venture capital strategy and have issued all fund interests by July 21, 2011. The second rule provides the exemption for advisers that solely advise private funds and have assets under management in the United States of less than $150 million. Under the rule, this exemption applies to U.S. advisers with less than $150 million in total assets under management in “private funds,” so long as all of the adviser’s clients, U.S. or non-U.S., are private funds. An adviser with a place of business outside of the U.S. will qualify for the exemption if all of its U.S. clients are private funds, and the assets the adviser manages at any U.S. place of business are solely private fund assets with a total value of less that $150 million. Both U.S. and non-U.S. advisers must calculate the value of their assets under management according to instructions in Form ADV, as revised in a separate rulemaking. Finally, the third rule implements the foreign private adviser exemption by defining terms used in the new statutory exemption and otherwise clarifying its operation. Identified problem to be addressed by regulation: Adopting rules to implement the three new exemptions from registration under the Advisers Act. Providing rules, definitions, and clarifications for new exemptions enacted under the Dodd-Frank Act. Consideration of alternatives reflecting the range of statutory Definition of Venture Capital Fund SEC’s definition of venture capital fund was designed to distinguish venture capital funds from other types of private funds, such as hedge funds, private equity funds, and to address concerns expressed by Congress regarding the potential for system risk. SEC did not define a venture capital fund by reference to investments in small businesses or companies or by reference to the California definition of “venture capital fund,” as some commenters suggested, but did adopt an approach suggested by several other commenters that defines a venture capital fund to include a fund that invests a portion of its capital commitments in investments that would not otherwise meet the requirements of the rule. SEC capped the amount of nonconforming investments at 20 percent of the fund’s capital commitments, after considering this and other amounts suggested by commenters. This change from the proposal provides venture capital funds greater investment flexibility. SEC defined a venture capital fund as a private fund that generally holds equity securities of qualifying portfolio companies that are directly acquired by the private fund. SEC also allowed acquisition of equity securities that are (i) issued in exchange for directly acquired equity securities or (ii) issued by companies that own or merge with qualifying portfolio companies. SEC considered the definition of qualifying portfolio company, leverage limitations applicable to venture capital funds, and whether venture capital funds can issue securities that provide investors with withdrawal or redemption rights. SEC considered comments concerning the scope of permissible short-term holdings and ultimately determined to include money market fund shares in this category. SEC considered comments and ultimately determined not to adopt a proposed managerial assistance requirement. SEC considered comments and determined that a venture capital fund must represent that it pursues a venture capital strategy, but need not necessarily call itself a “venture capital fund.” SEC grandfathered advisers to existing private funds that do not meet all of the requirements but represented to investors at the time the fund issued its shares that it pursed a venture capital strategy, among other requirements. Exemption for Investment Advisers Solely to Private Funds with Less Than $150 Million in Assets under Management The Dodd-Frank Act specifies that SEC is to exempt from registration under the Advisers Act any investment adviser solely to private funds having less than $150 million in assets under management in the United States. SEC determined that an adviser based in the United States must aggregate the value of all assets of private funds it manages to determine if the adviser is below the $150 million threshold. SEC determined to require advisers to calculate their private fund assets using a new method for calculating regulatory assets under management that was adopted in a separate rulemaking. This method requires advisers to use fair value but does not specify a particular fair value standard to mitigate costs associated with the requirement. SEC originally proposed to require advisers relying on the exemption to calculate their private fund assets each quarter to determine if they remain eligible. Commenters persuaded SEC that requiring advisers to calculate private fund assets annually would be more appropriate because it would result in the same number of advisers becoming registered each year while reducing costs. If a non-U.S. adviser relying on the exemption has a place of business in the United States, all of the clients whose assets are managed at that place of business must be private funds and the assets must have a total value of less than $150 million. A non-U.S. adviser may not rely on the exemption if it has any client that is a U.S. person other than a private fund. SEC incorporated the definition of a U.S. person in Regulation S under the Securities Act. Whether a non-U.S. adviser has a place of business in the United States depends on the facts and circumstances. Whether the exemption is available, however, frequently will turn on whether the non-U.S. adviser manages assets at a U.S. place of business, rather than whether an adviser has such an office in the first instance. SEC defined the term “qualifying private fund” to permit advisers to rely on the exemption if their funds qualified for an Investment Company Act exclusion in addition to those provided by section 3(c)(1) or 3(c)(7) of that act. SEC defined certain terms for use by advisers seeking to avail themselves of the foreign private adviser exemption, including “investor,” “in the United States,” “place of business,” and “assets under management.” SEC generally defined these terms by reference to existing definitions and concepts that should be familiar to non-U.S. advisers. PRA: The rules do not contain a collection of information requirement and thus no PRA analysis was required. RFA: SEC certified in the proposing release that the regulation would not have a significant impact on a substantial number of small entities. SEC requested written comment regarding the certification, but no commenter responded to the request. SEC noted that as a result of the Dodd-Frank Act’s repeal of the private adviser exemption advisers that previously were able to rely on that exemption will have to register under the Advisers Act unless they are eligible for an exemption. SEC further notes that the benefits and costs associated with registration for advisers that are not eligible for an exemption are attributable to the Dodd-Frank Act. Similarly, the benefits and costs of being an exempt reporting adviser, relative to being a registered adviser or an exempt adviser, are specifically attributable to the Dodd-Frank Act. SEC discusses the benefits and costs of its rules to implement the three exemptions under the Advisers Act. Benefits or costs monetized? Qualitative description of the benefits or costs? Definition of Venture Capital Fund Benefits Modifications to final rule better describe the existing venture capital industry. Greater flexibility to the venture capital industry to accommodate current and future business practices and investment opportunities. Criteria under final venture capital rule facilitate transition to new exemption by minimizing the need to alter existing business practices. Allowing qualifying funds limited investments in non-qualifying investments could facilitate access to capital and flexibility to structure investments. Final rule definition permitting non-qualifying investments has several benefits, including predictability, ease of compliance. Definition of qualifying investment allows venture capital funds to participate in reorganization of capital structure of portfolio company, provides opportunity to take profits from investments. Final rule provision that allows a venture capital fund adviser to treat as a private fund a non-U.S. fund managed by the adviser facilitates capital formation and competition. Exclusion of guarantees of portfolio company indebtedness from the 120-day limit facilitates portfolio company ability to obtain credit. Restricts a portfolio company’s ability to incur debt that may implicate Congressional concerns regarding the use of leverage and distinguishes exempt venture capital funds from non-exempt leveraged buyout equity funds. Final rule contains several characteristics that provide additional flexibility to venture capital advisers and their funds, including grandfathering provision. To the extent that additional advisers are required to register this may facilitate SEC’s mandate to protect investors and benefits investing public. Costs Confirmation of grandfathered status. Cost of registration with SEC if exemption unavailable. New registrant establishing compliance infrastructure (one-time cost) if required to register with SEC. Annual ongoing compliance costs if required to register with SEC. Costs to determine how to structure new funds and meet elements of SEC definition. Adviser choice to structure funds to comply with definitions or not to form new funds could result in less competition and capital formation. Exemption for Investment Advisers Solely to Private Funds with Less than $150 Million in Assets under Management in the United States Benefits Permitting advisers to calculate their private fund assets annually, rather than quarterly, and to use the method of calculation required for regulatory purposes generally, reduces burdens on advisers. Annual calculations, together with separate amendments to Form ADV, also provide a transition period for certain advisers that are no longer eligible for the exemption. Definition of “United States person” based generally on Regulation S provides a well- developed body of law that appropriately addresses many of the questions that will arise under the new exemption Definition of “qualifying private fund” permits advisers to additional types of funds to rely on the exemption Costs Non-U.S. adviser internal review cost to determine whether they have assets under management in U.S. Cost of registration if exemption unavailable. N/A = not applicable. Number of days to comment: 66 Number of comments received: 117 Comments regarding regulatory analysis: SEC’s compliance infrastructure and annual compliance cost estimates were too low. SEC acknowledged that the costs of compliance for new registrants can vary widely depending on their size, activities, and the sophistication of their existing infrastructure. SEC did not receive any other comments concerning its specific cost estimates. In addition to the contact named above, Richard Tsuhara (Assistant Director), Holland Avery, Timothy Bober, Emily Chalmers, William R. Chatlos, Philip Curtin, Rachel DeMarcus, Lawrance Evans, Denise Fantone, Timothy Guinane, Thomas McCool, Jon Menaster, Patricia Moye, Robert Pollard, Jessica Sandler, Andrew Stavisky, and Eva Yikui Su made key contributions to this report.

Summary: The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) requires or authorizes various federal financial regulators to issue hundreds of rules to implement reforms intended to strengthen the financial services industry. GAO is required to annually study financial services regulations. This report examines (1) the regulatory analyses, including cost-benefit analyses, financial regulators have performed to assess the impact of selected final rules issued pursuant to the Dodd-Frank Act; (2) how financial regulators consulted with each other in implementing the selected final rules to avoid duplication or conflicts; and (3) what is known about the impact of the final rules. GAO examined the 32 final Dodd-Frank Act rules in effect as of July 21, 2011; the regulatory analyses conducted for 10 of the 32 rules that allowed for some level of agency discretion; statutes and executive orders requiring agencies to perform regulatory analysis; and studies on the impact of the Dodd-Frank Act. GAO also interviewed regulators, academics, and industry representatives.. Federal financial regulators are required to conduct a variety of regulatory analyses, but the requirements vary and none of the regulators are required to conduct benefit-cost analysis. All financial regulators must analyze the paperwork burden imposed by their rules and consider the impact of their rules on small entities as part of their rulemaking process. The Commodity Futures Trading Commission and the Securities and Exchange Commission are also required under their authorizing statutes to consider certain benefits and costs of their rules. As independent regulatory agencies, the federal financial regulators are not subject to executive orders requiring federal agencies to conduct detailed benefit-cost analysis in accordance with a guidance issued by the Office of Management and Budget (OMB). Financial regulators are not required to follow OMB's guidance, but most told GAO that they attempt to follow the guidance in principle or spirit. GAO's review of regulators' rulemaking policies and 10 final rules found inconsistencies in the extent to which OMB's guidance was reflected. GAO recommends that to the extent the regulators strive to follow OMB's guidance, they should take steps to more fully incorporate the guidance into their rulemaking policies and ensure that it is consistently followed. Although federal financial regulators have coordinated their rulemaking, they generally lacked formal policies to guide these efforts. The Dodd-Frank Act establishes interagency coordination requirements for certain agencies and for specific rules or subject matters. However, for other rules, the regulators have discretion as to whether interagency coordination should occur. The Financial Stability Oversight Council (FSOC) is tasked with facilitating coordination among member agencies but, to date, has played a limited role in doing so beyond its own rulemakings as it continues to define its role. Several regulators voluntarily coordinated with each other on some of the rules GAO reviewed. However, most of the regulators, including the Bureau of Consumer Financial Protection, lacked written protocols for interagency coordination, a leading practice that GAO has previously identified for interagency coordination. GAO recommends that FSOC work with the financial regulators to develop such protocols for Dodd-Frank Act rulemaking. Little is known about the actual impact of the final Dodd-Frank Act rules, given the short amount of time the rules have been in effect. Regulators are required to conduct reviews of existing regulations to assess their impact, but some have not yet developed plans to review their Dodd-Frank Act rules. To maximize the usefulness of these reviews, GAO recommends that the regulators identify what data will be needed to retrospectively assess the impact of the rules in the future. FSOC is also required to examine, among other things, financial market and regulatory developments and make recommendations to enhance the efficiency, competitiveness, and stability of U.S. financial markets. Although FSOC officials said that FSOC plans to include an impact analysis of the Dodd-Frank Act rules in its future reports, it has not yet begun identifying and collecting the data needed for this type of analysis. GAO recommends that FSOC direct the Office of Financial Research, an entity created to support the research needs of FSOC, to work with the regulators to identify and begin collecting data needed for future analyses. GAO is making four recommendations to the regulators and FSOC to strengthen the prospective and retrospective analyses of the impact of Dodd-Frank Act regulations on financial markets and improve coordination among financial regulators on rulemaking. Regulators and FSOC generally agreed with the report's findings but most neither agreed nor disagreed with the report's recommendations.