Congress has piled law upon law upon the banking business since 1863, when it enacted the National Bank Act. The creation of the Federal Reserve in 1913 and the Federal Deposit Insurance Corporation (FDIC) in 1933 expanded federal regulation of the banking business, once largely the province of the states.
Periodic crises since the Great Depression have led to additional congressional legislation, notably to resolve the savings-and-loan crisis in the 1980s and an increase in bank failures shortly thereafter.
More recently, of course, was passage of the Dodd-Frank Act in 2010, which was intended to prevent a repeat of the 2008 financial crisis, which triggered the Great Recession. The adverse effects of that recession still linger within the global economy.
Like all major pieces of legislation, Dodd-Frank had many flaws, some of which Congress attempted to rectify last year when it passed the Economic Growth, Regulatory Relief and Consumer Protection Act (S. 2155).
These are not simple laws. For example, the printed version of Dodd-Frank spreads over 863 pages while S. 2155 is about one-tenth that length. These laws, though, are just the tip of the proverbial iceberg because extensive, highly detailed regulations have to be written to implement them.
The three major bank regulatory agencies — the Federal Reserve, the FDIC and the Comptroller of the Currency — have the primary responsibility for writing these regulations, but other agencies often are involved, too, including the Consumer Financial Protection Bureau, the Securities and Exchange Commission and the Commodity Futures Trading Commission.
One law firm identified 398 regulations that would have to be written or revised to implement Dodd-Frank. S. 2155 unleashed another wave of regulation writing.
The cumulative effect of these laws and the hundreds of regulations they have spawned has been to construct a horribly encrusted regulatory edifice that cannot easily, nor quickly, be reformed.
It is extremely challenging to untangle this regulatory mess, in large part because the federal Administrative Procedure Act (APA) governs the highly legalistic process under which regulations are written, amended or repealed.
In particular, the APA’s “notice and comment” requirement permits interested parties, most often those entities directly affected by a regulation, to comment on and object to any proposed changes in existing regulations or the wording of new regulations.