D.C. war has an unintended consequence

As the Dodd-Frank Wall Street Reform and Consumer Protection Act approaches its one-year anniversary, Washington’s highly charged partisan response to the law may give rise to an unintended consequence: a brain drain at our financial regulators.

Although some may argue that a smaller work force at the Securities and Exchange Commission, Federal Reserve, Commodity Futures Trading Commission and other regulatory bodies would be a positive, even advocates of less regulation would probably admit that intelligent regulation is a priority. But if partisan gridlock remains the norm, why would anyone with intelligence, judgment and a smattering of sanity wish to take on the Sisyphean task of developing one complex rule proposal after another only to see his or her work delayed, discarded or diluted?

Without intelligent, knowledgeable regulators, any rules or laws intended to protect the American people from malfunctions or misdeeds at financial firms are destined to be poorly designed and implemented. As a result, the very financial companies that complain about overregulation will find themselves spending more time and money to navigate nonsensical compliance, to the advantage of their international competitors.

It isn’t difficult to see why those opposed to Dodd-Frank are working so hard to delay its implementation.

The law in its current incarnation is flawed. Besides failing to address adequately at least one major cause of the financial crisis — the overleveraged housing market — it burdens regulators with the nearly impossible task of writing and rewriting hundreds of rules, many of which are focused upon areas that were only tangential to the financial crisis.

Nevertheless, Congress passed Dodd-Frank a year ago Thursday with the intent of fixing loopholes, plugging gaps and shoring up weaknesses in the regulations that serve as ground rules for markets and the economy. If intelligently implemented, many aspects of the new legislation will go a long way toward achieving the congressional goal.

That is why we can’t allow politicians, or special-interest groups, to delay financial reform unnecessarily by underfunding regulators or blocking important nominations.

Not only does the strategy of using funding as leverage in political arm twisting leave investors unnecessarily exposed to risks, it leaves Republicans vulnerable to accusations that they put their political interests ahead of investor protection.

This week, there inevitably will be lots of talk about missed deadlines. Many will harp on the fact that of the 400 rules to be written under the legislation, just 38 had been finalized as of July 1.

The truth is that the deadlines set forth by Dodd-Frank were, in many cases, too aggressive.

Rather than seek to delay implementation of the new law by cutting regulators’ funding, or blocking important nominations, those worried about the unintended consequences of Dodd-Frank should focus on getting those deadlines extended to a period of three to five years.

Regulators need the time and financial resources to properly interpret and implement the duties and responsibilities that they have been given under Dodd-Frank. Let’s give them the time to do it right, and hope vested interests don’t so discredit financial regulation that our watchdogs become lapdogs.