Federal Reserve Board Vice Chairman Janet Yellen said Friday the central bank will soon issue a long-awaited package of proposed rules implementing the Dodd-Frank Act.
"The Federal Reserve will soon release for comment its proposed rule on enhanced prudential standards that would apply to large bank holding companies and systemically important nonbank financial firms," Yellen said in prepared remarks at a conference hosted by the Federal Reserve Bank of Chicago. "Efforts to develop these rules have been progressing well."
The rules, which implement Section 165 of the regulatory reform law, cover some of the biggest issues in financial services, including risk-based capital requirements, leverage, resolution planning and concentration limits.
They are considered by some to be the core of Dodd-Frank. The rules had been previously expected to be released in September, but have been delayed for months given the importance of the regulations.
It has been estimated the set of rules released by the Fed could range from 1,000 to 2,000 pages.
The proposals will detail how the Fed plans to regulate large, interconnected financial institutions — as well as non-banks — for the first time. They will also provide clarity on whether such firms will face an added capital surcharge and how regulators plan to unwind systemically important companies if they fail.
In October, the Fed put out for comment a proposed rule for designating nonbank financial firms.
"Because the material distress or failure of a SIFI can have outsized effects on the financial sector and the real economy, the Dodd-Frank Act empowers the Federal Reserve to reduce the probability of such events through tougher prudential standards, including enhanced risk-based capital and leverage requirements, liquidity requirements, an early remediation regime, and restrictions on activities," Yellen said.
Yellen, the Fed's No. 2, stressed the Fed has been "attentive" to coordinating rules required by Dodd-Frank with higher capital standards and new liquidity standards for large banks under the Basel III rules.
In related news, the Government Accountability Office (GAO) last Thursday said that the numerous agencies involved in financial regulation should find better ways to coordinate with each other as they seek to implement Dodd-Frank Act.
The GAO found that different agencies that are responsible for implementing different parts of Dodd-Frank have been coordinating only in an informal, ad hoc way.
"While informal and ad hoc coordination can produce the desired results, such coordination can break down when disagreements arise or other work becomes pressing," the GAO concluded.
The report recommends that the Financial Stability Oversight Council work with financial regulatory agencies such as the Federal Reserve Board and the Consumer Financial Protection Bureau to develop formal coordination policies.
The GAO report also looked at the steps the various financial regulators are taking to analyze the potential costs and benefits of the regulations they are implementing as a result of Dodd-Frank. It concluded that as the agencies seek to analyze potential costs and benefits, they should hew more closely to a set of guidelines developed by the Office of Management and Budget.
In addition, the report outlined a series of steps that it said the agencies should take so that they are better prepared to measure the eventual impact of the new Dodd-Frank regulations.
Sen. Richard Shelby, R-Ala., who has been pushing for greater scrutiny of new regulations, seized on the GAO's finding that some regulators have yet to develop plans to review the eventual impact of the rules they've been writing.
"That is why we need immediate Congressional action to hold financial regulators accountable for rigorous, consistent economic analysis on every new rule they propose," Shelby said in a press release