Financial Reform: The Devil Is in the Details

By Winthrop N. Brown of Milbank, Tweed, Hadley & McCloy LLP

Since it became clear that the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 would be enacted, much has been written about how attention now turns to the regulators for the issuance of more than 200 separate sets of regulations that are mandated by the new law.

On Friday, the day after the bill passed, Bank of America(BAC) warned that the financial overhaul legislation could cost it as much as $4.3 billion a year in lost revenue, plus a one-time charge of $7 billion to $10 billion.

Although other major banks reporting earnings on Friday, including J.P. Morgan Chase(JPM) and Citigroup(C) did not disclose details of how the bill would affect them, Bank of America's pronouncement was interpreted as an indicator that banks with significant exposure to the U.S. consumer market will face larger-than-expected costs from financial regulation.

In the wake of these predictions and concerns among key players in the financial industry, we are told by the press to brace for "an army of lawyers and lobbyists" which, having partly had its way with Congress, is now about to descend on the dozen-or-so agencies that will be issuing regulations implementing the Act. The implication is that, once again, and behind closed doors, key decision-makers will have their arms twisted by hired guns to undo the tough restraints that the Act imposed on the financial industry.

In fact, the process that is about to unfold is remarkably open, substantive and fair to all parties. For the most part, the agencies concerned are staffed with smart, knowledgeable and dedicated civil servants who have every incentive to carry out Congress's intent. (They testify regularly on the Hill and do not want to be criticized in public for failing to carry through on the Act's requirements.)

Opposite the agency staff will be arrayed a number of key industry trade associations and consumer interest groups that will do their best to shape the regulatory outcome in the interests of their members. These groups will depend heavily on talented in-house lawyers and policy types who have years of experience in how regulations can affect their members. They may call on outside law firms for help in preparing their comments on proposals, but the positions they adopt will be carefully crafted internally by representatives of their members.