July 19, 2010
Studying Dodd-Frank's Haircut
According to an analysis of the Dodd-Frank financial regulation bill (PDF here), the law firm Davis Polk estimates that there will be sixty-seven studies or one-time reports under the legislation. The report also finds that there are twenty-two recurring reports, and at least 243 mandatory rulemakings. The Davis Polk summary is more than 120 pages in length, giving an idea of just how much there is in the bill.
I'm fascinate by how many proposed provisions turned in "studies." Here's a quick look at one study that jumped out at me. "Sec. 215. Study on secured creditor haircuts."
(a) STUDY REQUIRED.—The Council shall conduct a study evaluating the importance of maximizing United States taxpayer protections and promoting market discipline with respect to the treatment of fully secured creditors in the utilization of the orderly liquidation authority authorized by this Act. . . . .
FIrst, have we all become so well-versed in financial jargon that "haircut" doesn't need any explanation? I suppose in context it is fairly clear, and the language has to do with a study, so it's not as though this is a regulation that will be applied to any specific party. Still, would it be so terrible to explain that the study will consider whether the government should retain a certain percentage of secured creditors' claims in times when the government spends funds in a resolution action?
Second, do we really need to study the "importance of maximizing United States taxpayer protections?" It seems to me that should always be part of the equation. Politicians may disagree about what maximizes protections for taxpayers, but I would hope that would be deemed important all the time. For example, a "freer-market politician" may argue that providing government funds should be done with limited strings attached because it is more likely to hasten recovery, thus benefiting taxpayers and justifying the expense. (Note: I say "freer market" instead of "free market" because it seems to me a true free-market politician should oppose a bailout in virtually all circumstances.) In contrast, a more pro-regulation politician may think significant restrictions on banks and a significant "haircut" (such as treating 25% of secured creditors' claims as though they were unsecured) if the government funds a resolution action would protect taxpayers by promoting market discipline. Both have legitimate, if not correct, viewpoints, and both hopefully consider what's best for U.S. taxpayers when they choose their positions.
Ultimately, I suppose more time spent negotiating language on this provision probably wasn't worth it. I'm just not sure funding sixty-seven studies was either.
July 19, 2010 | Permalink