Federated boss worried about Dodd-Frank 'stray bullets'

Ask J. Christopher Donahue what his biggest business fear is these days, and the Federated Investors Inc. president and chief executive offers a somewhat cryptic answer. “Stray bullets,” he said. Specifically, the Federated boss is worried that with so much uncertainty about how the Dodd-Frank law will affect financial services institutions, some regulations may trigger unintended consequences. For instance, the Consumer Finance Protection Agency, which was created under the law, comes under the aegis of the Federal Reserve, but isn't supervised by the Fed. “There is no formal review process,” Mr. Donahue said in an interview. “This is just an enormous giant of authority.” Granted, that aspect of the law shouldn't affect mutual funds. But Mr. Donahue, whose fund firm has $336.8 billion in assets under management, is worried that with so many of the Dodd-Frank rules dependent on the outcome of Securities and Exchange Commission studies, mutual funds may become a target. Rather than conducting a study and then issuing rules, Mr. Donahue said he would like to see regulators work with the industry on their concerns. One example: When the SEC revamped its Rule 2a-7, which regulates money markets, the commission worked with the Investment Company Institute to come up with new rules. “This is a model of how it should be done,” Mr. Donahue said. Conversely, he said the Dodd-Frank approach “is to launch missiles in the air.” The problem? “You don't know how they are going to hit," he said.