I've written here previously about "sleeper" provisions in the Dodd-Frank Act that may have major consequences, and here is one more: Under Section 342 of the Act, each of the 30 federal financial agencies and departments--including the SEC--must establish an "Office of Minority and Women Inclusion." Section 342 provides that not later than 6 months after the date of enactment of Dodd-Frank, each agency shall establish such an Office "that shall be responsible for all matters of the agency relating to diversity in management, employment, and business activities." The L.A. Times reports that the Act covers the SEC and all federal financial agencies and departments, including all 12 Federal Reserve banks.

Each Office will be responsible for developing standards for equal employment opportunity and diversity of the workforce, as well as the increased participation of minority-owned and women-owned businesses in the programs and contracts of the agency. To that end, each Office will also establish procedures "for review and evaluation of contract proposals and for hiring service providers [that] shall include, to the extent consistent with applicable law, a component that gives consideration to the diversity of the applicant." If the Director of the Office determines that an agency contractor or subcontractor has failed to make a good faith effort to include minorities and women in their workforce, "the Director shall make a recommendation to the agency administrator that the contract be terminated."

The provision further specifies that it applies to

"all contracts of an agency for services of any kind, including the services of financial institutions, investment banking firms, mortgage banking firms, asset management firms, brokers, dealers, financial services entities, underwriters, accountants, investment consultants, and providers of legal services."

The impact of this little-known provision, which was championed by Rep. Maxine Waters (D-Los Angeles), is just now starting to be realized and discussed. Some observers such as Diana Furchtgott-Roth, who was the Labor Department's chief economist under President George W. Bush, believe the effects could be quite dire. "This will destroy the financial industry," she warned. "If the CEOs of American financial institutions have to be worried about the diversity regulations, whereas those in other countries are worrying about their profits, we are going to fall behind."

Minority and women's advocates, however, say the provision is ground-breaking. Michael Yaki, a member of the U.S. Commission on Civil Rights, told the L.A. Times that "This is a wake-up call for Wall Street: women, black Americans, Asian Americans, Latino Americans, they all pay for your bailouts. Firms must take steps to be more reflective of America."