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WILMARTH 4/1/2011 1:11 PM 1012 OREGON LAW REVIEW [Vol. 89, 951 have also noted that LCFIs skillfully engaged in global regulatory arbitrage by threatening to move operations from the United States to London or to other foreign financial centers if U.S. regulators did not make regulatory concessions. 257 Fifth, Dodd-Frank does not provide specific instructions about the higher capital requirements and other enhanced prudential standards that the FRB must adopt. Instead, Dodd-Frank sets forth general categories of supervisory requirements that the FRB either must or may address. 258 Thus, the actual achievement of stronger prudential standards will depend upon implementation by the FRB through rule making, and LCFIs have marshaled an imposing array of lobbying resources to persuade the FRB to adopt more lenient rules. 259 When Congress passed Dodd-Frank, the head of a leading Wall Street trade association declared that “[t]he bottom line is that this saga will continue,” and he noted that there are “more than 200 items in [Dodd- Frank] where final details will be left up to regulators.” 260 257 Coffee, supra note 239, at 18–21; Gordon & Muller, supra note 200, at 27. 258 See supra notes 234–35 and accompanying text; see also Stacy Kaper, Now for the Hard Part: Writing All the Rules, AM. BANKER, July 22, 2010, at 1 (stating that although Dodd-Frank will “require the Fed to impose tougher risk-based capital and leverage requirements, it is unspecific about how this should be done”). 259 See Binyamin Appelbaum, On Finance Bill, Lobbying Shifts to Regulations, N.Y. TIMES, June 27, 2010, at A1 (noting that “[r]egulators are charged with deciding how much money banks have to set aside against unexpected losses, so the Financial Services Roundtable, which represents large financial companies, and other banking groups have been making a case to the regulators that squeezing too hard would hurt the economy”); see also Kaper, supra note 258; Congress’s Approval of Finance Bill Shifts Focus to Regulators, BLOOMBERG BUSINESSWEEK (July 16, 2010), http://www.businessweek.com /news/2010-07-16/congress-s-approval-of-finance-bill-shifts-focus-to-regulators.html. 260 Randall Smith & Aaron Lucchetti, The Financial Regulatory Overhaul: Biggest Banks Manage to Dodge Some Bullets, WALL ST. J., June 26, 2010, at A5 (quoting, in part, Timothy Ryan, chief executive of the Securities and Financial Markets Ass’n); see also Edward J. Kane, Missing Elements in U.S. Financial Reform: A Kubler-Ross Interpretation of the Inadequacy of the Dodd-Frank Act 7 (Nat’l Bureau of Econ. Research, Working Paper 2010), available at http://papers.ssrn.com/sol3/papers.cfm ?abstract_id=1654051 (“During and after what will be an extended post-Act rulemaking process, decisionmakers will be opportunistically lobbied to scale back taxpayer and consumer protections to sustain opportunities for extracting safety-net subsidies. . . . Financial-sector lobbyists’ ability to influence regulatory and supervisory decisions remains strong because the legislative framework Congress has asked regulators to implement gives a free pass to the dysfunctional ethical culture of lobbying that helped both to generate the crisis and to dictate the extravagant cost of the diverse ways that the financial sector was bailed out.”); Kaper, supra note 258 (reporting that, “[b]y some estimates, federal regulators must complete 243 rules, . . . along with 67 one-time reports or studies and 22 periodic reports” in order to implement Dodd-Frank’s mandates).
WILMARTH 4/1/2011 1:11 PM 2011] The Dodd-Frank Act 1013 During the summer of 2010, domestic and foreign LCFIs succeeded in weakening and delaying the imposition of enhanced capital standards under the Basel III proposal, and they expressed their determination to prevent U.S. regulators from adopting stronger capital requirements that would go beyond Basel III. 261 During the 2010 midterm congressional elections, LCFIs and their trade associations made large contributions to Republican candidates, which helped Republicans to take control of the House of Representatives and significantly reduce the Democrats’ majority in the Senate. 262 The financial services industry strongly backed President Obama and Democratic congressional candidates in 2008, but the passage of Dodd-Frank caused big financial institutions and their trade associations to shift their support to Republicans in 2010. 263 The new Republican House leaders quickly announced their 261 As discussed above, the BCBS agreed in September 2010 on a proposal to strengthen international capital standards. Under the proposal, banks would be required to maintain common equity equal to 7% of their risk-weighted assets, including a 2.5% “buffer” for extra protection against future losses. See supra note 250 and accompanying text. However, the BCBS significantly weakened many of the terms of the proposal in comparison with its original recommendation in December 2009, and the BCBS also extended the time for full compliance with Basel III until the end of 2018. The BCBS made those concessions in response to extensive lobbying by U.S. and foreign LCFIs as well as the governments of France, Germany, and Japan. See Pruzin, supra note 250; Yalman Onaran, Basel Means Higher Capital Ratios, Time to Comply, BLOOMBERG BUSINESSWEEK (Sept. 13, 2010), http://www.businessweek.com/news/2010-09-13/baselmeans-higher-capital-ratios-time-to-comply.html. Stock prices of major LCFIs rose significantly in response to the BCBS’s compromise proposal, indicating that the compromise was more favorable to leading banks than analysts had expected. Michael J. Moore & Yalman Onaran, Banks Stocks Climb as Basel Gives Firms Eight Years to Comply, BLOOMBERG (Sept. 13 2000), http://www.bloomberg.com/news/2010-09-13 /banks-climb-as-regulators-allow-eight-years-to-meet-capital-requirements.html. In addition, LCFIs declared that they strongly opposed efforts by individual nations, including the United States, the United Kingdom, and Switzerland, from imposing capital requirements that are stronger than the Basel III proposal. Yalman Onaran, Banks Resist as Regulators Say Basel Is Just a Start, BLOOMBERG BUSINESSWEEK (Oct. 11, 2010), http://www .businessweek.com/news/2010-10-11/banks-resist-as-regulators-say-basel-isjust-a-start .html. 262 Clea Benson & Phil Mattingly, Firms That Fought Dodd-Frank May Gain Under New House, BLOOMBERG BUSINESSWEEK (Nov. 3, 2010), http://www.businessweek.com /news/2010-11-03/firms-that-fought-dodd-frank-may-gain-under-new-house.html; Stacy Kaper, Banks Use Election as Payback for Reg Reform, AM.BANKER, Sept. 7, 2010, at 1; Robert Schmidt, Wall Street Banking on Republicans to Push Legislative Goals, BLOOMBERG (Sept. 14, 2010), http://www.bloomberg.com/news/2010-09-14/wall-streetbanking-on-republicans-to-push-legislative-goals.html. 263 Kaper, supra note 262; Brody Mullins & Alicia Mundy, Corporate Political Giving Swings Toward the GOP, WALL ST. J., Sept. 21, 2010, at A5; Editorial, Troubled
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