The WSJ's David Benoit opines:
Break out the champagne, Saturday marks the two-year anniversary for the famed Dodd-Frank financial reform act.
Deal Journal can only speculate that Senators Dodd and Frank and President Obama are celebrating with the traditional two-year anniversary gift of cotton, perhaps a hoodie emblazoned with their legacies. Several law firms have taken a more straightforward approach to the anniversary and delivered progress reports.
So far, the work is incomplete. In fact, in terms of homework completed, the agencies charged with making nearly 400 rules would be failing if they were in school. Still, the rule has led to changes by banks and created new oversight.
The only good thing about Dodd-Frank in fact is that it is still incomplete. One other thing's for sure, however, is there is nothing here to celebrate. Dodd-Frank is still, as I called it when it was born, quack corporate governance:
In 2005, Roberta Romano famously described the Sarbanes-Oxley Act as “quack corporate governance.” In this article, Professor Stephen Bainbridge argues that the corporate governance provisions of the Dodd-Frank Act of 2010 also qualify for that sobriquet.
The article identifies 8 attributes of quack corporate governance regulation: (1) The new law is a bubble act, enacted in response to a major negative economic event. (2) It is enacted in a crisis environment. (3) It is a response to a populist backlash against corporations and/or markets. (4) It is adopted at the federal rather than state level. (5) It transfers power from the states to the federal government. (6) Interest groups that are strong at the federal level but weak at the Delaware level support it. (7) Typically, it is not a novel proposal, but rather a longstanding agenda item of some powerful interest group. (8) The empirical evidence cited in support of the proposal is, at best, mixed and often shows the proposal to be unwise.
All of Dodd-Frank meets the first three criteria. It was enacted in the wake of a massive populist backlash motivated by one of the worst economic crises in modern history. As the article explains in detail, the corporate governance provisions each satisfy all or substantially all of the remaining criteria.
Bainbridge, Stephen M., Dodd-Frank: Quack Federal Corporate Governance Round II (September 7, 2010). UCLA School of Law, Law-Econ Research Paper No. 10-12. Available at SSRN: http://ssrn.com/abstract=1673575
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