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The Administration's Regulatory Uncertainty

Groups like the Center for American Progress are claiming that the possibility of another row over the budget and debt ceiling are creating "uncertainty" in the economy. One might ask why it is that the Senate has not taken up a budget passed by the House for almost five years, but the fact is that the Obama administration itself is guilty of causing uncertainty among businesses. Here are five ways in which the administration is causing regulatory uncertainty:

  1. The administration refuses to finalize rules mandated by the 2010 Dodd-Frank Act, 3 years after it passed. According to the Davis-Polk law firm, “As of December 2, 2013, a total of 280 Dodd-Frank rulemaking requirement deadlines have passed. Of these 280 passed deadlines, 168 (60%) have been missed and 112 (40%) have been met with finalized rules. In addition, 165 (41.5%) of the 398 total required rulemakings have been finalized, while 111 (27.9%) rulemaking requirements have not yet been proposed.” The administration’s dilatoriness on Dodd-Frank is probably the biggest single creator of financial uncertainty and contributes to the inability of Americans to get access to capital, thereby stopping capital formation and the creation of new jobs. That's not to say these rules will be a good thing when promulgated - they almost certainly will restrict financial innovation further - but there's considerable uncertainty right now as to how they will do that. Banks can't plan for the future, which means they don't lend to people.
  2. The excessive powers of the Consumer Financial Protection Board and Financial Stability Oversight Council instituted under Dodd-Frank create uncertainty as to where or why they will act next. The designation of major insurance firms like Met Life as Systemically Important Financial Institutions ("SIFIs") when they present no systemic risk creates significant uncertainty in the insurance industry and other nonbank financial institutions.
  3. For the first time since 2009 a new bank opened recently. This is unlikely to happen again soon. The regulatory hoops investors and entrepreneurs must jump through to charter a new bank are almost insurmountable, while many small banks cannot take them any more and are merging. This is causing uncertainty in the small banking sector and again restricting access to capital when it is most needed.
  4. The SEC is creating uncertainty in its rules for two aspects of the JOBS Act that were meant to free up financial innovation and allow more small firms access to capital. Regulation D reforms will require pointless form-filling that will scare off many small firms or open them up to unnecessary regulatory errors caused by their lack of experience in compliance. The crowdfunding rules appear to have been designed to restrict portal development to broker/dealers, when the intent of JOBS Act was clearly to open up potential among technological innovators. Once again, these rules create uncertainty that restricts capital formation.
  5. The National Labor Relations Board is causing significant uncertainty with its proposed rules on Persuaders and Ambush Elections, meaning that firms are contemplating the threat of forced unionization and do not know how they will be allowed to counter that threat. Once again, this uncertainty is diverting resources away from innovation and job creation.

Or, as Pejman Youfeszadeh puts it, "Yes Virginia, regulatory uncertainty is very real."