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Complexity and short memories endanger your savings accounts

June 16, 2011

| MoneyRates.com Senior Financial Analyst, CFA

Did you think the debate over financial regulation was long over?

About a year ago, the congressional battle over the Dodd-Frank reform bill was heating up, and all the deal-making and arm-twisting ultimately led to passage of that legislation. However, that didn't really settle things.

An implementation labyrinth

First of all, the bill contained a labyrinth of to-be-determined details. Various enforcement agencies are now grappling with the implementation of those details, and the Dodd-Frank Act seems to have reached new heights in complexity.

According to the Wall Street Journal, the 2002 Sarbanes-Oxley Act, which addressed corporate management accountability in the wake of the Enron scandal, totaled 66 pages in length. At the time, it created considerable angst because of its complexity and implementation requirements. By way of comparison though, the Dodd-Frank Act totaled 849 pages, and that's before you start counting the individual implementation guidelines being drafted by enforcement agencies.

Short memories

At the other end of the spectrum is the attitude of politicians advocating on behalf of the financial industry to roll back as much of the financial legislation as possible. While some common sense and simplification of the law would be welcome, throwing the whole thing out would be a mistake. It took over 60 years for Congress to get complacent enough to repeal Glass-Steagall, a centerpiece of 1930s financial reform, and that proved to be an extraordinarily costly error. Have memories actually gotten that much shorter, that some people would now do away with reform only three years after the financial crisis?

What does all this mean for your savings accounts, money market accounts, and CDs? Like Goldilocks, you need financial regulation that is "just right." Too complex, and the resulting regulatory burden will lower CD, savings, and money market rates for years to come, and make other products, such as checking accounts, more expensive.

On the other hand, if politicians succumb to short memories and loosen up financial reform too much, it could endanger not just the interest, but also the principal of your accounts.

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