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Will Banks Find Wiggle Room Post-Reform?

NEW YORK ( TheStreet) -- The financial reform bill that is headed toward President Obama's desk covers nearly every element of finance from Wall Street to the local community bank.

"Unless your business model depends on cutting corners or bilking your customers, you have nothing to fear," the president said in a speech on Thursday afternoon.

Still, the Dodd-Frank Act that finally passed through the House and Senate overlooked one important item: Simplicity.

In fact, despite assurances that the financial-reform bill would streamline the financial regulatory system, the Dodd-Frank Act may have actually made it more complex and added new arbitrage opportunities. Now it's a question of whether regulators can effectively implement the array of new rules among an array of new and existing agencies.

"No one with a clean sheet of paper would come up with the current structure," Michael Helfer secretary and general counsel at Citigroup (C - Get Report) said Thursday, just hours before the reform bill had passed. Helfer called the lack of streamlining of the system "the lost opportunity" of financial reform.

When a top bank executive says the financial reform bill didn't do a good enough job of closing loopholes, that says a lot about how much the bill accomplished in that regard. It's an important factor because, even if finreg represents the best, most effective laws that could be placed on the books, they're made moot if implemented poorly.

Right now, banks answer to up to seven regulators, depending on how they are chartered and what businesses they operate in. There's the Federal Deposit Insurance Corp., Federal Reserve, Securities and Exchange Commission, Commodity Futures Trading Commission, Treasury Department -- as well as the Office of Thrift Supervision and Office of the Comptroller of the Currency within it -- and state regulators as well.

The system has long been criticized as being rife with opportunities for so-called "loophole lawyers" who figure out ways for banks to take advantage of conflicting regulatory agendas: A state-chartered bank answers to someone other than the federally chartered bank, and banks with an array of different business lines had no one regulator manning the ship.

Furthermore, while the Fed has always had the highest perch upon which to look down at the financial system, it could only enforce action on holding companies, not the entities within them. The Fed also has been criticized for failing to pop the housing bubble as it was inflating. The OTS allowed banks like IndyMac to get away with practices that were embarrassingly irresponsible when disclosed. The SEC doesn't have the greatest track record of enforcement, either, as Judge Rakoff made plain when handing down his judgments on a Bank of America (BAC - Get Report) lawsuit last year.

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