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The Fin Reg Crystal Ball
President Barack Obama's reelection victory in November not only renewed calls for overcoming Washington gridlock, it also uncomplicated one campaign question mark: the future of the Dodd-Frank financial reform law.
Republican challenger Mitt Romney vowed to repeal the outsize legislation that regulates Wall Street postfinancial crisis, but his defeat essentially put an end to such ideas.
To get a sense of how in-house counsel in the financial sector should plan for the coming year, Corporate Counsel checked in with Michael Krimminger, former general counsel of the Federal Deposit Insurance Corporation and now a partner with Cleary Gottlieb Steen & Hamilton in Washington, D.C. A couple of days after the election, and nearly four months after the two-year anniversary of Dodd-Frank, Krimminger highlighted these top-line issues:
Living Wills: The rules for living wills require financial companies to map out how they could be resolved under the Bankruptcy Code. The next set of deadlines for covered companies arrive in July and December 2013, so keep prepping accordingly.
Capital Requirements: Be prepared for the finalization of rules related to capital requirements for banks. "I think the regulators are pretty determined to move forward and finalize those rules in the first half of 2013," Krimminger says.
The Volcker Rule: Perhaps the most talked-about rule of Dodd-Frankespecially after J.P. Morgan's multibillion-dollar trading loss last spring. A bevy of regulators are still deciding just how they're going to put restrictions on proprietary trading by banks. But Krimminger predicts that the Volcker Rule could be finalized by the end of the first quarter of 2013, as the principal agencies involved sort out their issues with one another.
Leadership Changes: Even as President Barack Obama prepares for a second term, some familiar faces in and around his administration could be replaced in the near future. Treasury Secretary Timothy Geithner has said he won't stay on for a second term, and Securities and Exchange Commission Chairwoman Mary Schapiro stepped down from her post in late November. "The SEC and the Treasury are obviously major players in these issues," Krimminger notes.
Dodd-Frank Challenges: As regulatory agencies find their rule-making tested by the judiciary, Krimminger says a challenge's success is most likely to hinge on whether a rule can withstand a cost-benefit analysis in court. He adds that the idea of applying a cost-benefit analysis to new rules "has support on both sides of the aisle" in Congress.
Compliance Costs: Although many Dodd-Frank initiatives only affect the largest financial companies, "there are a number of issues that are beginning to percolate down to smaller financial institutions," Krimminger says. So as now-familiar recovery plans, resolution plans, and stress tests come to be seen as "best practices," smaller institutions will come to bear those compliance costs as well, he says.