WASHINGTON — Implementing the Dodd-Frank Act was never going to be easy.

While lawmakers generally acted like the fighting was finished when the law was signed on July 21, everyone knew it was just the beginning. At 2,300 pages, the law left most of the heavy lifting to some 30 different federal agencies, which had to write roughly 400 rules or studies, more than half of them not due until 2012 or later.

Since then, regulators have issued 121 proposals, finalized 38 of them, and missed 26 deadlines, according to estimates by the law firm Davis Polk.

But numbers do not tell the whole story, due to the varying complexity of some rulemakings compared with others. Looking at the big picture items, it is clear there have been significant strides in some areas, while others have stalled or been ignored entirely.

Democratic Rep. Barney Frank, one of the law's principal authors, said while lawmakers who opposed the bill are still criticizing it, there is nothing major standing in the way of implementation. Overall, Frank said he is pleased with the progress over the past year.

"The Republicans have had a number of hearings" but "there have been very few calls for any substantial amendment on the part of the financial services community," he said.

In this article, we focus on issues where regulators have made critical progress, while the next story will detail much of the work still left unfinished.

Capital and Leverage Standards
Capital received relatively short shrift in Dodd-Frank, largely because lawmakers knew the Basel Committee on Banking Supervision was tackling the issue and were reluctant to put U.S. firms at a competitive disadvantage by setting higher standards.

Still, international regulators moved much faster and more aggressively than many expected.

"I think we've moved quite far and rather quickly on the new post-crisis capital regime — farther and faster than I think anyone would have anticipated a year ago," said John Dearie, executive vice president at the Financial Services Forum.

Under a proposal issued last year, banks would have to hold 4.5% in common equity by 2015, and an additional 2.5% conservation buffer by 2019. On July 2, international regulators said they would propose forcing the largest banks to hold even more capital, tacking on an extra 1% to 2.5% as a systemic surcharge.

International regulators also issued a proposal last year designed to ensure banks have adequate liquidity when the next financial crisis occurs. The proposal would require banks to ensure outflows are matched by inflows in the event of a run on the banks during a short-term financial stress that lasts no more than 30 days.

Both the capital and liquidity plans have drawn plenty of fire, with big banks in particular saying they went too far and would constrain lending and economic growth. House Republicans have written to regulators raising concerns about the capital plan, suggesting lawmakers may seek to revisit the issue.

As it relates to Dodd-Frank, meanwhile, the capital provisions are largely implemented. Regulators finalized a rule earlier this year that implemented the Collins amendment, which establishes a capital floor for all banks and stricter criteria for what counts as Tier 1 capital. (The provision was authored by Sen. Susan Collins, R-Maine.)

To be sure, the Basel III process is far from finished, and regulators may opt to alter requirements. But for now, the capital picture is much clearer than it was a year ago.

Resolution Authority
Policymakers claim that the primary reason that bailouts were necessary in 2008 was the lack of legal tools to resolve large, failing financial firms such as AIG.

Dodd-Frank sought to remedy this problem by giving the government the ability to unwind such companies, a key way to eliminate the perception of "too big to fail."

Regulators have made laudable progress in laying out a framework for the new powers. The Federal Deposit Insurance Corp. has already finalized rules providing clarity about the relief and claims priority for creditors, and a joint proposal in March from the FDIC and Federal Reserve Board would require "living wills" from large financial firms. Officials say they expect a final living will regulation by August.

The FDIC has also formed a blue-ribbon committee of experts, including former Federal Reserve Board Chairman Paul Volcker, dedicated to studying ways to best resolve a huge firm.

Mark Zandi, chief economist at Moody's Analytics, praised the FDIC's progress. "I think they'll do a good job in terms of resolving large, troubled institutions, and I think they're well down the path of doing that," he said.

Moody's Investors Service cited the FDIC's new resolution powers in its recent decision to consider downgrading Citigroup, Bank of America, and Wells Fargo, indicating that the new regime may have at least some effect on market expectations about the likelihood of future bailouts.

Still, despite the progress by regulators, it is not clear that resolution authority will be effective at a time of crisis. Another major rating agency, Standard & Poor's, stated recently that it believes extraordinary government support for some large, systemically important firms is still possible under certain circumstances.

The resolution of financial firms with large operations based in multiple countries poses a particular challenge. Former FDIC Chairman Sheila Bair testified in May that the FDIC has made "considerable progress" in reaching bilateral agreements with other countries in order to facilitate orderly resolutions of firms across international borders.

But many remain skeptical. Cornelius Hurley, director of the Center for Banking and Financial Law at Boston University, said the FDIC statements about the end of government bailouts have resulted in a "credibility gap" with the financial industry. That type of skepticism will likely remain until the FDIC uses its new regime to successfully resolve a systemically important firm.

Consumer Protection
While much of the jostling over Dodd-Frank hinged on technical issues, the consumer protection debate has revolved mostly around one personality, Elizabeth Warren. Will Warren become the first director of the Consumer Financial Protection Bureau? This was the $64,000 question last summer, and it remains a key issue a year later.

But since Warren was hired on a temporary basis 10 months ago to build the new agency, the facts on the ground have changed substantially. The CFPB is no longer a theoretical construct. Its L Street offices house a staff of more than 200, and the agency expects to have 1,000 employees by the end of the year. By its July 21 launch date, the bureau is expected to have a staff of 500 — about half of them from other federal agencies — with a total of 1,000 employees by the end of the year.

Warren's hires include Raj Date, a former managing director at Deutsche Bank Securities who has written critically about deregulation of the financial services industry.

Also onboard as the CFPB's enforcement chief is former Ohio Attorney General Richard Cordray. During his tenure in Ohio, amid the swell of foreclosures, Cordray was a thorn in the side of mortgage servicers. Holly Petraeus, the wife of incoming CIA Director David Petraeus, is the head of an office that will protect members of the military from abusive lenders.

Harvard economist Sendhil Mullainathan, a leader in the field of behavioral economics, will head a team of PhD economists whose work will inform the agency's rulemaking.

The bureau has also made it an early priority to shorten consumer financial disclosures, and to make them much clearer. Even if Warren leaves the agency tomorrow, she will have left a substantial mark.

The powers that the CFPB will take over on July 21 include rulemaking authority for existing consumer financial laws and the authority to conduct consumer financial examinations of banks with more than $10 billion in assets.

It is unclear, however, how much the agency can do without a Senate-confirmed director, or even one appointed by the president during a Congressional recess.

"Any effective office needs a confirmed or appointed director," said Karen Shaw Petrou of Federal Financial Analytics Inc. "Until that's done, the framework is very much up in the air."

Congressional Republicans have taken a hard line against Warren's appointment, and Senate GOP members have said they will oppose any appointment unless structural changes are made to the agency itself.

For now, the absence of a confirmed director has two important consequences for the CFPB. First, it means that the agency holds less clout than it would otherwise on Capitol Hill and in discussions with other regulators.

Second, there may be important limitations on the agency's authority. In January, inspectors general for the Fed and Treasury concluded that until a director is confirmed, the CFPB may not prohibit unfair, deceptive and abusive practices in connection with consumer financial products, and that it may not supervise non-banks. Both of these powers are key parts of the CFPB's authority under Dodd-Frank.

Interchange Fees
Sen. Richard Durbin's amendment requiring the Fed to cap interchange fees on debit-card transactions was a late, unexpected addition to Dodd-Frank.

The Durbin Amendment called on the Fed to establish fees that are "reasonable and proportional" to the costs incurred by card issuers. It also contained language exempting banks with under $10 billion of assets, though small banks questioned whether this exemption could be made to work in practice.

In December 2010, the Fed released a proposal that would have capped debit interchange fees at 12 cents per transaction, far below the current average of 46 cents. The proposal sparked a pitched lobbying fight between banks and retailers over whether to delay the cap's implementation.

Though bankers lost the fight in the Senate, they later won partial redemption when the Fed set a 21-cent cap plus fraud costs in its final rule.

Whatever one's view of the Durbin Amendment, it's been implemented fairly quickly. While it didn't happen quite on the timeline established by Dodd-Frank — the final rule was delayed by more than two months and does not go into effect until Oct. 1 — the Fed moved about as fast as could have been expected, especially given the amount of lobbying that took place.

So count the Durbin Amendment as one of the law's year-one achievements.

"But the qualifier to that is that that was never a core element to the legislation," Hurley said. "It was an extraneous piece."


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