According to Kevin Blakely, John Kocjan, and Christopher Spoth, it’s clear that the principles embedded in Dodd-Frank are here to stay. While some adjustments may be made around the edges of this monumental law, the core principles targeting systemic risk are set. Here is a brief excerpt from their article written (in February 2013) for Deloitte University Press. To read the complete article, please click here

Cover Image by Gary Kelley

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When the Dodd-Frank Act was enacted two years ago, many of the details were unclear, leading many industry observers to wonder what its true impact would be. In fact, some had hoped the Dodd-Frank storm would simply blow over. By now, it’s clear that the principles embedded in Dodd-Frank are here to stay. While some adjustments may be made around the edges of this monumental law, the core principles targeting systemic risk are set: financial stability (through the creation of the Financial Stability Oversight Council, the orderly liquidation authority for systemically important financial institutions, and higher capital requirements) and consumer protection (evidenced by the addition of the Consumer Financial Protection Bureau). Big changes like those aren’t likely to go away anytime soon—and they are expected to continue to have an outsized impact on risk management and compliance for banks.

While many in the industry already feel exhausted by the massive response the Dodd-Frank Act has required to date, in many ways we’re just getting started. Those banks that can roll with the punches over the next few years, as these regulations continue to unfold, may be in a position to benefit. They have the potential to become more highly capitalized, strengthen their balance sheets, improve adaptability, and enhance liquidity. And they’ll likely be operating in an industry that may be less tightly interconnected. Meanwhile, they are equally likely to face ever-increasing pressure to generate revenue, control costs, and achieve a larger return on equity—making such benefits that much more important.

While these regulations may be painful now, in many cases the resulting benefits are likely to be significant. For example, data quality and transparency are both areas where many banks have been looking to make strides for years. With Dodd-Frank, they have to make improvements—even if they must be made on a timeline that banks may not have tackled on their own. Timing aside, there may be benefits that can come from embracing (and maybe even surpassing) these new regulatory data and transparency expectations. And it’s not just the issue of data in which banks stand to make serious gains on the back of Dodd-Frank regulations.

In this article, we’ll quickly take stock of where Dodd-Frank has taken the industry to date, and then we’ll look ahead to share some suggestions for banks looking for opportunities to turn this new regulatory environment to their advantage.