Can the Dodd-Frank Act be reformed to strengthen the financial system and the overall economy? We think so

From: American Enterprise Institute

I. Introduction & General Themes

A. Reform Amendments Already Approved by the House

During the 113th Congress, the House Financial Services Committee reported more than two dozen bills that amend provisions of the Dodd-Frank Act (DFA), in many cases with strong bipartisan majorities. Several of these have also been overwhelmingly passed by the House.


B. Cost-Benefit Analysis Requirements for Rulemakings

For decades bi-partisan legislation and executive orders have required certain Federal financial regulators, including the Securities and Exchange Commission, the Commodity Futures Trading Commission, and the Office of the Comptroller of the Currency, to engage in cost-benefit analysis when preparing major and certain other rulemakings to ensure that rules are founded on facts and avoid imposing unnecessary burdens. However, these requirements are usually either ignored, do not apply to particular regulators (including the Federal Reserve), or are addressed in a cursory manner. Although the cost-benefit analyses of executive agencies have been subject to review by the Office of Management and Budget (OMB), the quality of that review has waxed and waned from administration to administration. With regard to independent agencies, there has been no administrative oversight of the quality of cost-benefit analyses. Rules that are not subjected to a good faith cost-benefit analysis not only fail to achieve their stated policy objectives, but they also hinder job creation and weaken the economy.

Financial regulators should be required to perform rigorous cost-benefit analysis as part of every rulemaking to get a full understanding of the potential impact of proposed rules, avoid flaws that could have been identified and addressed, and tailor rules to reduce regulatory burdens and more effectively achieve policy objectives. Additionally, financial regulators should be required to conduct further cost-benefit analysis at an appropriate time after rules have been implemented to determine the actual costs and burdens and make adjustments based on the new evidence.

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