It’s been one year since President Obama signed the sweeping financial regulatory reform bill known as Dodd-Frank into law. How are businesses feeling? More uncertain than ever.

Banks and other financial institutions, corporations, and credit-hungry small businesses are paralyzed by the lack of clarity in the financial rulemaking process and fear of the negative impact those rules could have when they are finalized.

“One year after Dodd-Frank was signed into law, the problems that led to the financial crisis have yet to be fixed,” says David Hirschmann, president and CEO of the U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness (CCMC). “Much of what we warned about a year ago has come true—instead of creating jobs, the law has created uncertainty for job creators.”

Derivatives Rules

Regulation of the multitrillion-dollar over-the-counter (OTC) derivatives market perhaps best illustrates Dodd-Frank’s flawed implementation. According to Michael Bopp, a partner at Gibson Dunn & Crutcher LLP, 105 derivatives rules were to be issued by July 15, but only 16 rules were finalized by that date. “We can expect to see a torrent of new rules in the next few months,” he says.

The rush to implement these rules, says CCMC Executive Director Jess Sharp, has “forced regulators into a full sprint, cranking out rules without regard for full consideration or logical sequencing. This leaves companies in the impossible position of, for instance, commenting on proposals that may not even apply to them because definitions and compliance standards are moving through the process out of order.”

For manufacturers, agricultural producers, energy utilities, and others, derivatives help manage legitimate day-to-day business risk—locking in commodity prices, interest rates, or foreign currency exchange rates to keep their prices stable. Congress clearly intended to shield these derivative end-users from the costliest derivatives rules, but it appears that regulators have different intentions. 

Tom Deas, vice president and treasurer of FMC Corp., a Pennsylvania diversified chemical company that hedges its energy costs through custom OTC derivatives, says his company expected to be exempt from margining [collateral requirements] when the law was being negotiated, and is “astonished” that that likely won’t be the case. Deas estimates that his company would have to set aside $269 million in cash to meet collateral requirements—money diverted from expansion and job creation.

A survey and analysis conducted by the Coalition for Derivatives End-Users, of which the Chamber is a member, found that a requirement to impose initial margin on OTC derivatives could lead to a loss of 100,000 to 120,000 jobs within S&P 500 companies alone. The federal government’s Office of the Comptroller of the Currency concluded that banks and other businesses would have to set aside more than $2 trillion in working capital to comply with the new standards.

Consumer Financial Protection Bureau

The fledgling Consumer Financial Protection Bureau (CFPB) is another significant cause of uncertainty and concern for businesses big and small. As currently structured, the agency has unchecked authority over the regulation of mortgages, credit cards, and other sources of credit, a massive budget, and no accountability. 

Lawmakers are scrambling to prevent potential Bureau abuse. In May, 44 senators wrote a letter to President Obama stating that they would not consider confirming a director for the Bureau until the structure of the organization is changed, and on July 21, the House passed a bill to restore accountability to the agency.

The House-passed legislation would create a five-member, bipartisan commission to govern the Bureau rather than a single director. Such a restructuring would conform the Bureau to other independent agencies, ensure impartial decision making, and ensure continuity and stability over the long term.

The bill would also institute a system of checks and balances by authorizing the Financial Stability Oversight Council (FSOC) to overrule CFPB regulations by a majority, rather than two-thirds vote, and would lower the substantive standard necessary for the FSOC to overrule Bureau regulations. 

Without proper structure and oversight, the Chamber argues, the CFPB could easily increase the cost of—or even ban—a wide range of financing products, hurting the individuals and small businesses it was created to help. 

Federal Appeals Court Strikes SEC Rule

Businesses eager for more certainty and a lighter regulatory burden with regard to implementation of Dodd-Frank were greeted with good news on July 22, when the U.S. Court of Appeals for the District of Colombia tossed out an SEC rule that would have allowed special interest shareholders, including labor union pension funds, to put forward their own board of director nominees. The three-judge panel agreed with the U.S. Chamber, which in a lawsuit filed to block the provision argued that the SEC failed to consider the rule’s impact on efficiency, competition, and capital formation. In tossing the rule, Judge Ginsburg stated that the SEC’s action was “unutterably mindless.”

“We applaud the court’s decision to prevent special interest politics from being injected into the boardroom,” says U.S. Chamber President and CEO Tom Donohue. “Companies and directors need to continue to focus on the important work of creating jobs and reviving our economy. The court’s decision also sends a strong message that regulators need to meet their statutory requirement to clearly prove that the benefits of regulation outweigh the costs.”

As Dodd-Frank enters its second year in existence, the Chamber will continue its efforts to ensure that implementation of the law addresses weaknesses in the financial system rather than perpetuate or make them worse. Last week, CCMC issued a report, Unfinished Agenda, that examines five critical areas left unaddressed by the law and their impact on U.S. competitiveness.

“We are simply not going to see American companies spending capital until they can begin to navigate their way through this tangled web of regulation,” Hirschmann says. “It is critical for our markets to remain competitive in a global economy, and we will continue to work throughout the implementation process to ensure we don’t fall behind the rest of the world.”