The Real Work Of Financial Regulation Begins

This week, President Obama is expected to sign into law the Dodd-Frank bill, a sweeping rewrite of the nation's financial regulations. The bill contains dozens of new laws aimed at preventing the kind of market meltdown that has left the economy so badly damaged.

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This week, President Obama is expected to sign the Dodd-Frank Bill passed by the Senate last week. The bill will transform the banking and insurance industries, imposing dozens of new laws aimed at preventing the kind of market meltdown that has left the economy so badly damaged. But the process of overhauling the financial system is only partly finished. Over the next 18 months, regulators will carry out a complex process called rule-making, where the real details of the new bill will get thrashed out.

NPR's Jim Zarroli reports.

JIM ZARROLI: Timothy Ryan heads the Securities Industry and Financial Markets Association and he knows a thing or two about the way laws get written. Ryan was involved in the savings and loan bailout in the late '80s, and, he says, there has never been anything like the task facing regulators over the next couple of years.

Mr. TIMOTHY RYAN (Securities Industry and Financial Markets Association): So, we're now going to go into this unprecedented time period. There is no time in the United States history where we have had this type of legislative change and this number of regulatory requirements placed on these agencies.

ZARROLI: The problem is this: the bill passed by the Senate this week amounts to a kind of outline of what should happen in many of the most important areas of the financial services industry, like securitization and derivatives. But it will be up to federal agencies like the Treasury Department and the SEC to fill in the details.

For example, the bill creates a council to oversee financial firms that are so big their demise would cause a risk to the whole financial system, and that council can dismantle firms that get in trouble financially. But it will be up to regulators to decide which banks qualify as too big to fail. There are thousands of issues like this that need to be addressed.

Attorney Seth Grosshandler of the law firm Cleary Gottlieb Steen and Hamilton points to another. The bill allows U.S. regulators to dismantle troubled financial institutions and dispose of their assets. But what about those companies' foreign subsidiaries?

Mr. SETH GROSSHANDLER (Attorney, Cleary Gottlieb Steen and Hamilton): That's the really thorny issue, and this legislation doesn't really deal with it. It puts it into a study. Right? But, I mean, everyone knows this is no secret. The regulators know that the cross-border aspects are very, very important to figure out what to do, but that's not a quick thing.

ZARROLI: Grosshandler was one of several hundred people who turned out on Thursday for a conference in New York on the new legal landscape. Many of those attending were lobbyists eager to put their stamp on the new rules.

For big Wall Street firms, there is a lot of money involved. Charles Johnston is president of Morgan Stanley Smith Barney. He says this is a new era for the financial markets. U.S. regulators have made clear that companies can still sell the same products to their investors but they have to be more transparent.

Mr. CHARLES JOHNSTON (President, Morgan Stanley Smith Barney): There's got to be more accountability, and the real unanswered question is: what's the definition of that accountability? And it's too early to tell, but that's why the industry's got to have a voice in this and try to be a good partner and get to the right outcome for both our clients and for the industry.

ZARROLI: Johnston says the new bill could be a good thing for investors if it leaves them feeling more confident about the markets. But they will be hurt if the regulations are too onerous and financial firms like his stop selling a lot of the products they offer now.

Tim Ryan of the Securities Industry and Financial Markets Association says it's just too soon to tell what will happen.

Mr. RYAN: It's unprecedented, so no one knows how long it's going to take. The statute gives them requirements, time requirements - most of them are about 18 months - to finalize this. Having had some experience in this area, it will not surprise me if this is pushed out a lot longer.

ZARROLI: Much of this process will take place largely outside of public view. It's the kind of grinding detail work that tends to be ignored by the press. But for Wall Street companies, it can be a chance to try to shift the impact of the new bill in important ways, which means that for lobbyists the real work has just begun.

Jim Zarroli, NPR News.

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