When the Dodd-Frank Act was being developed, one issue under consideration was whether the Board should lose some of its regulatory powers in view of its poor regulatory performance prior to the crisis. Instead, Dodd-Frank substantially increased the Board’s regulatory powers.1 One of the most important new powers is the authority to regulate nonbank financial institutions designated systemically important by the Financial Stability Oversight Council.2 So far, General Electric Capital Corporation, American International Group, and Prudential have been so designated, with additional entities likely to follow. These financial institutions will present the bank-focused Board with new regulatory challenges. It is important that the Board respond with well-vetted, tailored regulations that recognize that these entities are not banks and cannot be effectively regulated as if they were.
Despite Washington’s recent focus on the disastrous Affordable Care Act website rollout, policymakers are missing what the rollout glitches symbolize: the fundamental flaws that imbue government intervention. The work of public choice economists such as Nobel laureate James Buchanan, Gordon Tullock, Mancur Olson, and William Niskanen has shown that, despite good intentions and lavish use of taxpayer resources, government solutions are not only unlikely to solve most of our problems—they often make problems worse.
Chairman Schweikert, Ranking Member Clarke, and members of the Subcommittee, thank you for the opportunity to be part of today’s hearing on regulatory burdens on small financial institutions. In financial services, as in every other sector, the United States is not a one-size-fits-all nation. Financial institutions of all different sizes coexist, and customers choose among them based upon their needs. A regulatory environment that is increasingly unwelcoming to small financial institutions may curtail customer choice.
We are ultimately advocating not for Bitcoin, but for innovation. It is important that policymakers allow this experimentation to continue. Policymakers should work to clarify how Bitcoin is regulated and to normalize its regulation so that we have the opportunity to learn just how innovative Bitcoin can be.
The enormous amount of regulation generated each year and the huge potential for improving it could provide enormous net benefits to society. A strong watchdog agency is needed to provide the transparency and checks and balances needed to set priorities for high-impact regulations.
In addition to rebuilding OIRA’s technical staff and enhancing its voice in policy debates with the agencies, several other more subtle steps should be considered by the administrator.
Chairman Blumenthal, Ranking Member Hatch, and members of the committee, thank you for inviting me to testify today. I am an economist and senior research fellow at the Mercatus Center at George Mason University, a 501(c)(3) research, educational, and outreach organization in Arlington, Virginia. My primary research focuses on the regulatory process and how it could be improved, so I am delighted to testify on today’s topic.
Chairman Jordan, Ranking Member Cartwright, and members of the Subcommittee, thank you for the opportunity to be part of today’s hearing on the effect of Dodd-Frank on community banks. Dodd-Frank was the product of desperation in the face of a deeply painful financial crisis and outrage at the big financial institutions that were at the center of the trouble. Not only does Dodd-Frank fail to effectively address the problems that precipitated the crisis, but it also imposes costly burdens on many businesses that were not central causes of the crisis. Among these are community banks.
The best way to avoid forcing low-income households to pay for the preferences of high-income households is to allow them to make their own choices when it comes to the mitigation of risks they experience. Unintended consequences of regulation, like the regressive effect identified here, will often result in greater harm than the harm the regulation seeks to avoid in the first place. Regulators should heed the medical ethics maxim “first, do no harm” and at a minimum subject all regulation to a cost-benefit test that considers potential regressive effects.
Dr. Virgil Storr argues that every market is animated by economic spirits that affect economic outcomes, and that these spirits are cultural phenomena, giving the example of St. Bernard's Parish's recovery following Hurricane Katrina in 2005.
For an exploration of the economic situation and more, the Mercatus Center at George Mason University invites you to join Dr. Bruce Yandle as he presents a year end, quarterly economic commentary and discusses the outlook for the year ahead.
Mercatus Senior Research Fellow Keith Hall explains the economics behind the jobs numbers and how to read between the lines to get a better understanding of what they mean for our economy and different groups of Americans.
In this book, Paul Dragos Aligica discusses some of the most challenging ideas emerging out of the research program on institutional diversity associated with Elinor Ostrom and her associates, while outlining a set of new research directions and an original interpretation of the significance and future of this program.