FinReg: More questions than answers

By Becky Quick, contributor

FORTUNE -- So many words ... so little clarity. That may be the best summation of the financial regulatory reform bill. The legislation weighs in at 848 pages (at least the electronic version does). Compare that with, say, the Constitution of the United States, which founded the legal principles of our nation nearly 223 years ago. That original document (handwritten, naturally) clocked in at just four pages. Granted, the Founding Fathers wrote in small print. But come on. Four pages to run a country, vs. 848 pages to run a bank? Really?

And in its 800-plus pages,the FinReg bill manages to create even more questions than it answers. Like what defines "risky" behavior for the banks, when an institution is too big to fail, and what the competitive field will look like in the new financial world. On many of those basic questions, the new legislation essentially punts, leaving the decisions to be determined by the regulators at some future point. And that means that instead of clarity, this law makes the financial landscape even hazier.

Becky Quick is an anchor on CNBC's Squawk Box.

"So much is left to be defined," laments Randall Kroszner, an economics professor at the University of Chicago's Booth School of Business. He's spent some time poring over the legislation because in his former life, as a Federal Reserve Board governor, he would have been one of the regulators charged with implementing it. In this case, he says, the rules are yet to be written: "The legislation mostly kicks the can down the road."

That's bad news, because what markets crave more than anything is clarity. In fact, even though analysts such as Betsy Graseck at Morgan Stanley expect the FinReg legislation to chop 11% off the big banks' earnings by the year 2011, the stocks actually rallied when it looked as if the congressional conference was settling in on a final version of the bill. Shareholders apparently figured a final version of the bill beats the unknown. But in this case, the relief rally may have come too soon, because so much is left to be decided.

The bankers are keenly aware of that. As the legislation was on the verge of being signed, a range of business leaders pointed out that they really don't know how financial reform will play out for them or their companies. In J.P. Morgan's quarterly earnings release, for instance, chairman and CEO Jamie Dimon noted that there are still "hundreds of rules to be written." And John Taft, chairman elect of the Securities Industry and Financial Markets Association and head of RBC U.S. Wealth Management, notes that the law will require over 250 rules to be made by more than a dozen regulatory agencies, some of which have yet to be created. "It's the single largest delegation of rulemaking authority by Congress to regulators in modern history," Taft says. (See editor's note at bottom.)

Of course, there is a silver lining to Congress's punting, and the bankers know that as well. Taft admits it could have been much worse: Congress could have actually ruled on all these decisions itself, instead of leaving it up to regulators who are much more familiar with the industry and how the markets work. "The world today is different than the world will be tomorrow," says Taft. "Things change, and people who are regulating the financial services industry need to be able to adapt."

In the end, the true skeptics say, none of it will matter. Danny Blanchflower, who used to sit on the Bank of England's interest-rate-setting committee, says history has seen reactionary measures like this play out again and again. He compares FinReg to the Maginot Line, the outdated French defense system that came short of stopping the German advance in World War II.

"I think FinReg is broadly irrelevant," says Blanchflower, who is now a Dartmouth economics professor and research associate at the National Bureau of Economic Research. "What we do every time is protect ourselves from the last financial crisis." What he's worried about -- and what all of us should worry about too -- is what the next financial crisis will look like. And chances are you won't find any glimpses of that in the 848 pages of this bill.

--Editor's note: An earlier version of this story incorrectly identified John Taft as the CEO of RBC Capital Markets. He is the head of RBC U.S. Wealth Management. To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Company Price Change % Change
Apple Inc 97.19 2.47 2.61%
Facebook Inc 71.29 2.02 2.92%
Microsoft Corp 44.87 0.04 0.09%
EMC Corp 28.75 0.23 0.81%
Bank of America Corp... 15.52 0.00 0.00%
Data as of 4:01pm ET
Index Last Change % Change
Dow 17,086.63 -26.91 -0.16%
Nasdaq 4,473.70 17.68 0.40%
S&P 500 1,987.01 3.48 0.18%
Treasuries 2.46 -0.00 -0.08%
Data as of 4:28pm ET


General Motors recalls another 718,000 U.S. cars to deal with variety of problems including seat height adjustments, welds and power steering. More

With cost-cutting at the U.S. Postal Service more letter carriers are working later and later to deliver your mail. About 38% of mail is delivered after 5 p.m. in cities nationwide. And areas like Atlanta, Washington and South Florida, it's 70%. More

As 65,000 IDF reservists are tapped to serve in Gaza, Israeli's tech community tries to maintain business as usual, amidst bombs, sirens and employees called to war. More

Court documents show big support from Detroit employees and retirees for a turnaround plan that should help the city emerge quickly from bankruptcy. More

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.