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Schapiro Departure Could Slow Dodd-Frank Implementation Schapiro Departure Could Slow Dodd-Frank Implementation

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Banking and Finance

Schapiro Departure Could Slow Dodd-Frank Implementation


Mary Schapiro, SEC chair, testifies before the House Financial Services committee on Tuesday, February 15, 2011.(Chet Susslin)

Mary Schapiro’s departure from the Securities and Exchange Commission will leave the agency’s rule makers evenly split between Republicans and Democrats, which could slow progress on many Dodd-Frank rules the agency still has to write.

Schapiro is stepping down from her post as SEC chairman on Dec. 14. President Obama plans to designate current commissioner Elisse Walter as chairman. But the five-member commission will be down to four: Walter and Luis Aguilar, who are both Democrats, and Troy Paredes and Daniel Gallagher, who are Republicans.


Experts expect Obama to name a replacement for Schapiro as soon as early 2013 but any pick would need Senate confirmation, which could take months. That means it could be up to a year before the SEC is back up to full strength.

With Congress focused on the year-end threat of tax hikes and spending cuts known as the fiscal cliff and all nominations, particularly those related to financial regulation, facing an uphill fight on Capitol Hill, the SEC is likely to remain divided—and gridlocked—for the foreseeable future. That’s likely to slow the implementation of the 2010 Dodd-Frank financial reform law.

The SEC has already seen some deadlines come and go on Dodd-Frank.


“The daily work of the SEC on enforcement and investigations, those will go on and no one will notice a difference. It’ll be business as usual,” said Brian Gardner, senior vice president of Washington research at investment firm Keefe, Bruyette & Woods. “But the big policy issues of the day—the implementation of Dodd-Frank, money mark fund regulation—those all really require a full commission to act because of the split at the commmission.”

The remaining commissioners have a full plate for 2013. The agency is charged with writing 95 rules under Dodd-Frank, according to law firm Davis Polk & Wardwell LLP, which tracks the legislation’s implementation. Only a third of those rules have been finalized, the firm said in its November report.

David Lynn, co-chair of law firm Morrison & Foerster’s Public Companies and Securities Practice, says finding agreement on the remaining rules won’t be easy for the divided commission.

“I think they’re all pretty contentious right now,” Lynn said of the still-to-be-finalized rules. “If they haven’t been adopted yet, there’s probably a good reason for that.”


Adding to the sluggish pace of implementation is the staff turnover that is expected to accompany Schapiro’s departure. Heads of divisions and other offices tend to leave when the chairman does, says Lynn, former chief counsel at the SEC, slowing work as new leaders are brought up to speed.

Some see a silver lining in gridlock, saying it may force both sides to compromise in order to get something—anything—done. But that worries consumer advocates like Barbara Roper, director of investor protection for the Consumer Federation of America, who fears the rules that move forward will be watered down to the point where they are too weak to address abuses. She considers gridlock a better possible outcome.

Financial nominees in particular have had a tough time getting through the Senate in recent years. Obama used a recess appointment earlier this year to get Richard Cordray in place as head of the contentious Consumer Financial Protection Bureau. Nobel Prize-winner Peter Diamond withdrew from his confirmation to serve on the Federal Reserve Board last year, citing how “distorted” the process had become after Senate Republicans repeatedly blocked his nomination (Obama eventually nominated a Democrat and Republican to serve on the Fed Board, and the confirmation process went much more smoothly).

Walter, then, is likely to remain chairman for months, if not through the next year. Experts say that Walter, who has long worked as a regulator but with a lower profile than Schapiro, brings a similar perspective to the post and would differ little from her predecessor. “I read this as kind of a status quo appointment,” said Mark Calabria, director of financial regulation studies at the Cato Institute.

Walter can serve until the end of 2013, at which point the White House could reappoint her or select another chairman; Treasury Under Secretary for Domestic Finance Mary Miller’s name has been cited as a another possibility to replace Schapiro.

In the meantime, expect even slower Dodd-Frank implementation from the SEC—but not an idle commission.

“I think they have plenty of work from always a full enforcement agenda to a long list of proposed and expected rules… under Dodd-Frank and the JOBS Act,” said David Martin of law firm Covington & Burling LLP, who co-heads the firm’s securities practice. “And while they won’t be able to do some controversial things on the margins, my guess is that many of these things are just necessary regulatory activities that have to occur.” And if a crisis like a market break crops up, Martin expects the divided commission would work together to address it—a heartening note in a hyper-partisan Washington.

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