The Final Hours: Obama’s Exit and Why Financial Regulation May Never be the Same


As he takes his final steps out the doors of the White House, his literal footprints may not be visible, but his figurative ones will be as transparent as the gray hair that sits above his once youthful face.

Nowhere is that more apparent than the world of financial regulation, which transitioned from a fringe issue to the forefront of national policy in the time it took Bear Sterns to be sold off for pennies on the dollar at the height of the 2008 Financial Crisis. We can only speculate at the permanency of the landmark regulation he signed into law during his tenure as a new administration beckons, but for now we can reflect at the main policy, and appointment, that ushered in Obama’s trademark vision, “change.”

Dodd-Frank Wall Street Reform and Consumer Protection Act

By far the most influential, and ultimately the most controversial, piece of financial regulation of Obama’s presidency the “Dodd-Frank Act” was and is considered to be the most comprehensive piece of financial regulation reform since the Great Depression.

Change:

  • Created the Financial Stability Oversite Council (comprised of organizational heads such as the SEC, FDIC, OCC, etc. and chaired by the Secretary of the Treasury). Main objective of the organization was to ensure and promote global financial stability and quickly respond to threats to that stability.
  • Volcker Rule: Focused on eliminating proprietary trading; “a banking entity” cannot engage in proprietary trading or retain any interest in a hedge fund or private equity fund. Specific capital requirements were implemented for “nonbanking” firms that conducted proprietary trading.
  • Increased transparency of executive compensation, disclosure became required for the relationship between executive compensation and company performance. Several CEO’s severance packages have been a focal point as a result of this change including, that of former CEO Ron Johnson of JC Penney.
  • Heightened focus on the actions of Credit Rating Agencies (CRA). CRA’s are required to disclose information on preliminary ratings and subsequent changes.  In addition, the board of directors of such agencies must be comprised of no fewer than two independent directors.

Future:

  • Trump opposes the Act and promises to replace it with “new policies to encourage economic growth and job creation.”
  • There has been speculation that the Financial Choice Act proposed by Congressman Jeb Hensarling could be used by a Trump administration to overhaul Dodd-Frank.

Appointment of Mary Jo White as SEC Chair

Confirmed in April of 2013, White will have been SEC Chair as long as nearly anyone when she steps down this month coinciding with the end of Obama’s eight year term.

Change:

  • 2,850 enforcement actions were brought by the Commission during a three year timeframe (many regarding misconduct in accounting and financial reporting), more than any other period of that length in the Commission’s history, resulting in $13.4 billion in monetary sanctions.
  • Introduced successful whistle blower policies that have awarded over $100 million in awards since their commencement.
  • Transparency of asset-backed securities was a major focus of White’s time as Chair of the Commission.

Future:

  • Stepping down as SEC Chair this month (January 2017) two years before the end of her term.

Sources

Financial Services Committee. (n.d.). Retrieved January 17, 2017, from http://financialservices.house.gov/choice/

Press Release. (n.d.). Retrieved January 17, 2017, from https://www.sec.gov/news/pressrelease/2016-238.html

The Dodd Frank Act - A Cheat Sheet. (2010). Retrieved January 17, 2017, from http://media.mofo.com/files/uploads/Images/SummaryDoddFrankAct.pdf

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By Todd Cheney, CPA