Lawmakers laid out a series of ambitious deadlines in the Dodd-Frank Act, requiring regulators to complete roughly 170 new rules by July.
But it has become increasingly clear that the agencies are going to miss many of those targets; several major rules, including one to force lenders to retain some risk from loans they sell to the secondary market, are behind schedule and unlikely to be completed anytime soon.
"Extensions are inevitable ... because the time frame is totally unrealistic," said Mark Olson, a former Federal Reserve Board governor and now co-chairman of Treliant Risk Advisors.
What remains unclear is what lawmakers will do about it. Other than dragging agency officials up to Capitol Hill to embarrass them, Congress has little power to force the agencies to move faster. Lawmakers may not even want to. Republicans, who opposed Dodd-Frank, are publicly urging the agencies to slow its implementation; some may even introduce bills to formally extend the target dates.
"In the rush to comply with the unrealistic deadlines set in Dodd-Frank, the regulators have had to focus on speed rather than deliberation," Sen. Richard Shelby, the top GOP member of the Senate Banking Committee, told regulators at a hearing last week. "While our regulators will do their best to comply with the deadlines, Congress should seriously examine whether the speed of the process is undermining its integrity."
Observers are split on whether the delay undercuts the goals of Dodd-Frank. Some said that, at the very least, it will take longer for the law's protections and other improvements to be felt.
"The more delay, the longer it takes for the private sector to take actions that they're holding off on because there's uncertainty as to what the regulations are going to look like," said Lawrence White, an economics professor at New York University.
He pointed to the mortgage securitization market as a case in point. Regulators are required to finish their risk-retention rule by April but have yet to even release a proposal as they debate what should be included in it.
"Arguably, among the reasons why private-sector securitization of mortgages hasn't come back is the great deal of uncertainty about how securitizations are going to be dealt with under the various regulations that are specified to be written under Dodd-Frank," White said.
Michael Barr, former assistant Treasury secretary for financial institutions and now a University of Michigan law professor, said it is only a problem if regulators miss the deadline "by significant amounts."
"Congress clearly indicated the timeframe in which they wanted the law to be implemented and bringing more certainty to the market is a good thing to do," Barr said. "If it's a day here or a day there, that's not worth much conversation."
But industry representatives are pushing for significant delays, claiming that Congress pulled the deadlines out of thin air. Rushing to complete rules, they said, may hurt their effectiveness and worsen any negative impact.
Dodd-Frank "is the law of the land. Now, what's most important is getting it implemented correctly and well, and being a slave to deadlines can conflict with that," said Ken Bentsen, a former Texas congressman who is now the executive vice president of public policy at the Securities Industry and Financial Markets Association.
Wayne Abernathy, the executive director of financial institutions policy and regulatory affairs at the American Bankers Association, said it is "just good government for Congress to go back and look at the deadlines and ask the question: 'How are these deadlines, which were created in haste, working out in practice?'
"Are they properly sequenced with regard to each other, as well as with regard to how quickly the banking industry and the economy can digest all of this?" Abernathy said.
Though the law gives regulators until July - one year after enactment - to complete many of the rules, a number of still-unfinished regulations must be adopted by April. Several rules that are the responsibility of a single agency, such as the Federal Deposit Insurance Corp. (FDIC) regulations on insurance premiums, have already been adopted.
But ones that involve multiple agencies may take much longer. Seven agencies, for example, are involved in the risk-retention rule, and they are still debating whether it should include national servicing standards.
Similarly, several agencies have until April to finish a joint rule curbing risky incentive-based compensation structures. The FDIC approved issuing a draft proposal for the rule this month. Because the other agencies have yet to do the same, however, the proposal has not been published in the Federal Register, meaning the 45-day comment period has not begun.
Regulators have all but acknowledged they are unlikely to meet many deadlines. At an FDIC board meeting last month to discuss the compensation proposal, John Walsh, the acting comptroller of the currency, said, "Unfortunately, it is not the only rule that may slip a little" past the statutory deadline.
Other items may also be delayed. Lawmakers on both sides of the aisle pushed last week for the Federal Reserve Board to delay implementation of its proposal to cap interchange fees on debit cards, arguing that it could hurt community bankers. But this rule is a special case because retailers and certain lawmakers, notably Sen. Richard Durbin, the author of the interchange provision in Dodd-Frank, are pushing just as hard for the Fed to move quickly. Most other regulations are less high-profile.
The biggest deadline crunch may face the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), the two agencies charged with implementing the law's derivatives provisions. More than 50 of the required rulemakings in the law involve derivatives reform, and fewer than 10 have been completed.
Meanwhile, the two agencies are the subjects of intense political debate regarding their funding. Democrats are proposing to increase the agencies' budgets to correspond with the workload, but Republicans want to reduce their funding.
"Asking the SEC and CFTC to write those rules in that timeframe, while at the same time not allowing them to hire additional staff, is not a way to run a railroad," said Margaret Tahyar, a partner in Davis Polk.
Dan Crowley, a partner in the K&L Gates law firm, said the CFTC and SEC - unlike the bank regulators, which are charged with delivering reforms of an existing regulatory structure - are building a new regime from scratch. For such a complicated endeavor, he said, it is not a good strategy to rush to meet a deadline.
"They're trying to create this entirely new regime on an artificially truncated timetable," Crowley said. "You're hearing more about the agencies not having enough resources or staff, which is a precursor to their saying they can't meet the deadlines."
The funding debate played out in a House Financial Services Committee hearing last week with SEC Chairman Mary Schapiro and CFTC Chairman Gary Gensler. Rep. Scott Garrett, R-N.J., voiced concern that attempting to move the rules within a squeezed timeframe could prove difficult for an industry trying to absorb a huge number of new regulations. He asked both Gensler and Schapiro whether they needed more time to draft the rules.
"Do either one of you think that you can do this appropriately and meet the deadline of July and still have fairness to the marketplace that we're talking about?" Garrett asked.
Neither regulator took the bait, but Gensler said, "We are human, some of these will happen after July, no doubt. It's not like a firm deadline, as I understand; we're going to get this right."
Observers said regulators in many cases can buy themselves some time if they have at least issued a proposal before the deadline for a final rule. For example, officials have indicated they hope to have the incentive-based compensation proposal out by the April deadline. Still, Crowley said, in some instances regulators may need the blessing of Capitol Hill to take more time.
"That can take any number of forms," he said. "One could be a statutory change. Another would be a clear directive from the oversight committees, and we're already starting to see that, which would ask them to go slow and basically give them political air cover to miss the deadline."
But Olson said the regulators may not be concerned about Capitol Hill's scrutiny. Deadlines set in big financial-related pieces of legislation have been missed before, he said.
"I'm sure people have thought about the opportunity of a bill" to extend deadlines, Olson said, "but ... many of these deadlines are going to be missed with or without" congressional approval.