Economic Analysis by Federal Financial Regulators

Editor’s Note: The complete Working Paper, Economic Analysis by Federal Financial Regulators, is attached here.

From: Mercatus Center/George Mason University

By Hester Peirce

The Wall Street Reform and Consumer Protection Act (“Dodd-Frank”)[1] gave U.S. financial regulators a long list of regulations to write. Despite the sweeping nature of the Dodd-Frank changes, Dodd-Frank does not generally require regulators to conduct economic analysis.[2] Further, most of the regulators charged with implementing Dodd-Frank are not subject to the standard regulatory analysis requirements for government rulemaking. Economic analysis can play a valuable role in assisting regulators in deciding whether and how to regulate, but very few financial regulators take advantage of this tool of their own volition.

This paper will describe just how little high-quality economic analysis the federal financial regulators charged with implementing Dodd-Frank and regulating the financial markets are doing.[3] Although each regulator has a unique approach to economic analysis, all of their approaches fall short of the standard to which executive agencies are held. More fundamentally, the federal financial regulators are depriving themselves of analysis essential to the proper exercise of their rulemaking functions.

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