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GAO analyzes cost of Dodd-Frank

By Marcie Geffner · Bankrate.com
Friday, March 1, 2013
Posted: 6 am ET

A federal oversight agency has issued a 99-page report about the losses suffered in the 2007-09 financial crisis and potential impacts of the landmark Dodd-Frank Wall Street Reform and Consumer Protection Act. The conclusions were largely inconclusive, yet the report sets a baseline for future analysis.

The U.S. Government Accountability Office, or GAO, reviewed studies that found the crisis resulted in massive job losses, large declines in household wealth, reduced tax receipts for state and local governments, and estimated costs of as much as $10 trillion or more in the value of goods and services not produced by the U.S. economy. Studies also suggest the crisis could have long-lasting negative effects on individuals, banks and the economy.

The reforms could make the financial system more stable and provide other benefits, but the extent to which those benefits will be realized is difficult to predict, the GAO report says.

Some studies say the reforms could help to reduce the probability or severity of a future crisis. But others say the reforms won't have the desired effect or their effectiveness will depend on how regulators implement them and how financial services firms respond. Reforms include enhanced supervision of large complex financial institutions, regulation of certain complex financial instruments and regulatory powers to liquidate financial companies in cases of dire systemic risk.

"Quantifying the act's potential benefits is difficult, but several studies have framed potential benefits of certain reforms by estimating output losses that could be avoided if the reforms lowered the probability of a future crisis," the GAO report states.

The report finds that federal agencies and financial services companies are devoting resources to Dodd-Frank implementation and compliance. The impact on the federal budget is limited because many of the agencies don't receive congressional appropriations, but costs imposed on financial institutions could restrict their business activities in ways that might affect products and services offered to consumers and could result in costs being passed along to consumers.

"Studies have estimated the economic impact of certain of the act's reforms," the GAO report states. "But their results vary widely and depend on key assumptions. Finally, some experts expressed concern about the act's potential unintended consequences and their related costs, adding to the challenges of assessing the benefits and costs of the act."

What do you think? Will rules enacted in the Dodd-Frank Act have a lasting effect, or any real effect at all?

Follow me on Twitter: @marciegeff.

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