The next 18 months are critical to the industry's future.

If federal regulators do not get the bulk of Dodd-Frank's provisions in place by the end of 2014, Congress is likely to take another, tougher whack at reform. It will make the 2010 law look tame by comparison.

For starters, lawmakers will tackle too big to fail either through asset caps or straight-out breakups. Not far behind will be moves to resurrect the wall between commercial and investment banking.

And the industry won't be the only target. Congress will realize the tangle of federal financial agencies prevents consensus and compromise. The next reform law will finally consolidate oversight of financial companies into a single agency.

The pressure to prevent all this lies squarely with the Federal Reserve Board. Dodd-Frank gave the Fed nearly unlimited power to crack down on risk-taking by banks and if the central bank cannot deliver on Dodd-Frank then Congress will strip it of bank regulation and supervision duties. A Federal Banking Agency will be created as a roll up of banking, securities and commodities oversight.

The Federal Deposit Insurance Corp. is right behind the Fed. It has one big job under Dodd-Frank — resolving systemically important financial companies. If the FDIC can't get that job done, Congress will narrow its role to simply serving as deposit insurer.

I might be wrong, of course. If the economy rebounds sharply, it's possible that policymakers will lose interest in preventing the next financial crisis. But it's a solid bet that Congress will take another bite at financial reform if Dodd-Frank isn't more fully implemented by the end of next year.

Look no further than the last crisis — the savings and loan mess of the late 1980s — for a precedent. Congress passed the Financial Institutions Reform, Recovery and Enforcement Act in 1989 and then came back two years later with the FDIC Improvement Act.

So it's dangerous to assume Dodd-Frank marked the end of reform.

Regulators seem to have gotten the message. In the last few weeks Fed officials have repeatedly vowed to "do more" if it turns out that Dodd-Frank didn't go far enough.

No one can know if the 2010 law is effective until it's actually in place, and implementation efforts to date aren't good enough. Davis Polk law firm closely tracks the regulators' efforts and estimates more than 60% of Dodd-Frank has yet to be implemented.

High-profile provisions like the Volcker rule's ban on proprietary trading are stuck, a victim of inter-agency squabbling. Ditto limits on counterparty exposures, derivatives trading, and much of the other supervisory tightening mandated by Section 165 of Dodd-Frank.

The regulators have focused more attention on headline-grabbing enforcement actions against the big banks than on the nitty-gritty work of writing regulations. That's largely because up to half dozen federal agencies are involved in each rule and negotiations are slow and painful.

Dodd-Frank created the Financial Stability Oversight Council to bring some leadership to regulation writing but it has not delivered. The Treasury Cecretary chairs the council and former Secretary Tim Geithner did little more than hold perfunctory meetings. His successor, Jack Lew, is signaling a more forceful role.

Lew testified May 21 that he has told regulators to hit the gas and get the Dodd-Frank rules written.

"My role is to make sure we don't measure our progress in months and years but we measure in weeks and months," Lew told the Senate Banking Committee.

And Lew clearly understands what's at stake here.

"This is a question of public trust in the government's ability to implement important policy that it said it's going to implement," he said.

Exactly.

The Oversight Council on Monday took a long-delayed step and voted to designate the first three nonbanks that it believes could pose a threat to the financial system. On Wednesday the Securities and Exchange Commission is slated to vote on new limits for money market mutual funds. Those are signs of progress, but both took much longer than they should have.

Tougher capital rules will be out this summer and the agencies have established a credible (if still too secretive) stress-testing regime.

But much still remains to be done and the regulators' plea for patience is wearing thin. Take the FDIC's plan for resolving a mega bank that falters. The so-called single-point-of-entry idea was widely praised as an ingenious approach, but months have passed while outsiders wait for the FDIC to put meat on those bones. Until the agency can convince critics that it has a credible plan for unwinding the largest banks, the specter of "too big to fail" will undermine the entire reform effort.

I am not saying any of this is easy. It isn't. But that's no excuse for years of delay.

But those in the industry who are encouraging this go-too-slow approach beware. The backlash for letting Dodd-Frank languish will be severe.

No less than Paul Volcker weighed in last week, and he has pretty impressive track record when it comes to influencing public policy.

"Lack of agreement on key regulations and their enforcement is simply unacceptable," the former Fed chairman said in a speech May 29 in New York. "The simple fact is the United States doesn't need six financial regulatory agencies. It is a recipe for indecision, neglect and stalemate, adding up to ineffectiveness. The time has come for change."

Volcker also warned that the next set of reforms may take a "meat-axe approach."

The regulators and the industry have 18 months to turn Dodd-Frank into a reality.

Let's hope they don't waste it.

Barb Rehm is American Banker's editor at large. She welcomes feedback to her column at Barbara.Rehm@SourceMedia.com. Follow her on Twitter at @barbrehm.

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