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Assessing the reach of Dodd-Frank.
Scott Leibs, CFO Magazine
April 1, 2011
Is the Dodd-Frank Act the new Sarbanes-Oxley? While it does not saddle CFOs with an immediate, and expensive, regulatory burden for which they are directly responsible, its scope and complexity may ultimately make it far more influential on companies' operations.
For one, Dodd-Frank will affect all companies, not just the diminishing ranks of those that are publicly traded. And, as many observers have noted, its breadth (or height, if you consider its 2,300+ pages) is staggering, and will require years to fully implement. But the most maddening resemblance may be that, like 2002's Sarbox, it will take even longer for its efficacy, or lack thereof, to become apparent. Businesses already struggle with what may be the most defining aspect of the "new normal" — a prevailing sense of uncertainty regarding every aspect of the economy, from the vagaries of consumer demand to the impact of new regulations — and Dodd-Frank seems likely to exacerbate rather than mitigate that unease, at least in the short-term.
This issue's special focus on banking offers a look at two examples. As senior editor Vincent Ryan notes in "The Big Fail," the legislation doesn't fully settle the argument as to whether, or how, the government will bail out financial institutions deemed too big to fail. It does take some important steps in putting a fence around the issue, but leaves more wiggle room than many would like. As Ryan explains, there may be good reasons for that, but for those hoping that one legacy of the financial crisis would be total clarity around this issue, Dodd-Frank disappoints.
The law is also having a ripple effect regarding which banks you do, or don't, do business with. As senior editor Alix Stuart details in "A Small Problem," an impending wave of M&A activity in that sector can be traced, at least in part, to Dodd-Frank. That could force some CFOs to assess new banking partners on the fly. On the plus side, for the moment credit conditions have eased, and many CFOs are rushing to take advantage.
In more good news, our latest Duke University/CFO Magazine Business Outlook Survey, which marks its 60th consecutive quarter with this iteration, continues to turn up additional signs of an improving economy. See "Spring Fever?" for a full rundown of your peers' attitudes and plans. And, for a lighthearted bit of perspective on the latest news, good and bad, see "2001: A Finance Odyssey." It's a useful reminder that volatility has been with us always.