How Much Did Dodd-Frank Cost? Don’t Ask Banks

By Llewellyn Hinkes-Jones

Muddled is the word when it comes to trying to quantify the costs that banks have incurred complying with the Dodd-Frank Act.

Trade associations representing the financial services industry often cite high compliance costs as a reason the 2010 law needs to be rolled back.

But none of the nine largest American banks currently designated as “systemically important financial institutions,” or SIFIs, could provide Bloomberg BNA details on what it cost them to implement the 2010 law.

What data is available related to Dodd-Frank compliance costs provides an inconsistent picture about whether banks are burdened by the rule.

Financial analysts indicated that defining Dodd-Frank-related expenditures might be close to impossible, and some compliance costs, like stress-testing, were already incurred before the act was passed.

Whatever the actual cost, the nation’s biggest banks have spent enough implementing Dodd-Frank and the regulations it spawned to be reluctant to dismantle the law as proposed by congressional Republicans and President Donald Trump.

“It would make sense that executives in the banking industry would welcome a rollback of regulations but that’s not necessarily the case,” said PricewaterhouseCoopers LLP’s Michael Alix, who worked at Bear Stearns and the New York Fed before joining PwC. “Most of the heavy lifting for implementation has been done.”

Few Specifics

The SIFIs’ SEC filings cite “increased regulatory and compliance costs” and technology investments over the last eight years, but include few specific figures related to labor, technology or paperwork costs, or whether those costs were directly related to Dodd-Frank.

A 2012 JPMorgan presentation included as part of an annual report mentions “regulatory and compliance costs up ~$100 [million]” since 2008 as well as FDIC expenses “up around $170 million.” In 2014, the bank indicated that it intended to hire 10,000 additional compliance officers while reducing its total head count by 5,000.

Citigroup’s 2015 10-K said the bank had added 16,000 compliance staff while losing 92,000 employees overall, which, along with onshoring data, led to increased and ongoing compliance costs. But the filings did not quantify those costs.

Citigroup told Bloomberg News that it spent $180 million in 2014 to improve its capital planning processes and ensure that it would pass a Dodd-Frank-required stress test in 2015 and that one-third of that amount was a continuing expense.

In the same story, Deutsche Bank indicated that it had hired 1,300 compliance-related employees and 500 employees were hired across “various control functions in the U.S.” to meet the 2015 stress test.

Hard to Quantify

Numbers collected by Bloomberg BNA showed little noticeable increase in expenditures by most of the major banks that might be related to compliance—legal fees, data processing, total employees and professional fees—after Dodd-Frank was enacted.

But financial analysts told Bloomberg BNA that expenditures related to Dodd-Frank are hard to quantify for very distinct reasons.

David Wright, managing director of Deloitte Advisory’s banking regulatory and compliance practice, told Bloomberg BNA that compliance costs don’t always fit into one single bucket. Resolution planning by itself involves ensuring the entire firm is properly organized.

Wright believes the banks are spending billions to comply: “A lot of what they’re doing is maintenance on things that were neglected for many years, and the rules allow compliance and risk officers to finally get the funding to do the necessary work.”

While there have been concerns over compliance costs, Wright said most of the complaining happened early on, and now most debate surrounds aspects of the Volcker Rule.

Wright added that if a company like JPMorgan or Citigroup says it added 5,000 compliance officers, that might mean it redirected some current employees to focus on compliance. Even if those were all new employees, “it’s still almost nothing considering that they employ over a quarter of a million people worldwide,” he said.

Karen Petrou, managing partner with Federal Financial Analytics, told Bloomberg BNA that calculating Dodd-Frank compliance costs is almost impossible because there’s no simple way of separating out Dodd-Frank-related expenditures from other internal expenditures and that changes in total costs might be masked by other non-Dodd-Frank-related activity.

For example, Petrou pointed out that banks started stress-testing in 2009, before Dodd-Frank rules on stress testing were enacted. “Dodd-Frank also caused banks to re-examine their financial models, but not all work on financial models was related to Dodd-Frank requirements,” she added.

Denise Valentine, senior analyst with the Aite Group, which put out a 2013 report on compliance costs related to the Department of Labor’s Fiduciary Rule for broker-dealers, told Bloomberg BNA that compliance costs are often spread across a company, like in employee training or updating customer relationship management software. “But the costs are sunk. It’s hard to tell people there’s a high standard and then say ‘never mind,’” she said by phone.

Varying Estimates

Government and other outside estimates of Dodd-Frank compliance costs vary widely.

The Government Accountability Office originally estimated Dodd-Frank compliance for all banks at $2.9 billion for the first five years.

Estimates published in the Federal Register put the total cost of implementing major Dodd-Frank provisions at $10.4 billion for all affected institutions. This includes rules for margin and capital requirements for swap entities, margin requirements for uncleared swaps, pay ratio disclosure and home mortgage disclosure.

But Sam Batkins, director of regulatory policy of the American Action Forum, a think tank dedicated to smaller government, said the agency estimates of paperwork costs are “often dubious.”

“There are examples of rules costing $105 billion to implement. Or there’s the Affordable Care Act rule that would require 1.9 trillion hours in paperwork. And there’s plenty more like that,” he told Bloomberg BNA.

Agencies often overestimate totals at first and then revise downward later, Batkins said. He cited an initial National Credit Union Association (NCUA) estimate that a rule would require 43 billion hours to implement. NCUA later revised that figure to 7 million, admitting numbers were accidentally multiplied rather than added when calculating the total.

Nevertheless, American Action Forum uses the numbers published in the Federal Register when compiling its own estimates, which concluded that Dodd-Frank implementation imposed $36 billion in costs and 73 million paperwork hours across all companies.

Securities and Exchange Commission rules on pay-ratio disclosure and conflict minerals prompted some of the largest number of cost-related complaints.

Conflict Minerals

The Dodd-Frank Act’s conflict minerals disclosure rule highlights the difficulty involved in estimating the costs involved in implementing rules accurately.

The SEC originally estimated complying with the rule would cost companies $71.2 million. But a survey by the Harvard Business Law Review of 1,300 conflict mineral filings with the SEC showed that attempts to identify conflict minerals in supply chains were indeterminate, requirements in the rule were ignored and the costs of implementing the rule were “grossly exaggerated.”

Less than 40 percent of the companies the SEC estimated would file disclosure forms actually did, and companies have begun adhering to a rule in a much simpler way.

The author of the paper, University of Utah law professor Jeffrey Schwartz, told Bloomberg BNA by phone that instead of companies tracing their mineral supply chains all the way to the mines in Africa, companies began using audit trails developed by the Conflict-Free Sourcing Initiative (CFSI) that focus on the smelters and refiners “where everything comes together.”

CFSI is a coalition of companies, from Apple to Xerox, that might be affected by conflict minerals in their supply chains. According to CFSI program director Leah Butler, the organization’s smelter audits are used to conform with Dodd-Frank’s Reasonable Country of Origin Inquiry (RCOI) as well as the Organisation for Economic Co-operation and Development (OECD) Due Diligence Guidance for Responsible Supply Chains of Minerals.

Schwartz believes that use of the CFSI audit trails, which were developed around the same time as the Dodd-Frank rule, brought down the cost of compliance considerably. “Adherence to the rule evolved in a way that the SEC didn’t anticipate,” he added.

— With assistance from Andrea Vittorio

To contact the reporter on this story: Llewellyn Hinkes-Jones in Washington at

To contact the editor responsible for this story: Paul Hendrie at

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