Financial Markets Working Group

Financial Markets Working Group

The Financial Markets Working Group is a collection of seventeen university-based scholars with expertise across a wide range of economic issues relevant to the recent economic crisis. Drawing on Mercatus’s long-standing expertise in economic and regulatory analysis, members of the Financial Markets Working Group conduct research that addresses the causes and potential solutions to the economic downturn to offer productive ideas to address the serious problems in financial markets and encourage a sustainable economic recovery.

Research

Hester Peirce | Jun 2016
One of the major components of Dodd-Frank was a comprehensive regulatory framework for over-the-counter derivatives. A key feature of this framework is a requirement that many of these derivatives be cleared through central counterparty clearinghouses. Clearinghouses have long played a stabilizing force in many markets, but Dodd-Frank’s regulatory mandate may adversely affect the way they operate. Risk management by clearinghouses and market participants could suffer, and improper risks could find their way into clearinghouses. If a clearinghouse were to fail, there would be tremendous pressure for the government to bail it out in the name of financial stability. Dodd-Frank’s derivatives framework should be reconsidered before it destabilizes the financial system. A better approach would empower market participants to decide whether to use clearinghouses and would allow clearinghouses the regulatory latitude to effectively manage their risks.
Todd Zywicki | Sep 29, 2015
A new paper for the Mercatus Center at George Mason University reviews the law and economics of consumer debt collection and its regulation and concludes that the CFPB should consider all the potential consequences of new regulation—both intended and unintended—to ensure that it will benefit consumers.
Jason Scott Johnston , Todd Zywicki | Aug 03, 2015
In a new study for the Mercatus Center at George Mason University, law professors Jason Scott Johnston and Todd Zywicki provide an overview and critique of the CFPB’s report. The study criticizes the report using primarily evidence supplied by the report itself. The CFPB’s findings show that arbitration is relatively fair and successful at resolving a range of disputes between consumers and providers of consumer financial products, and that regulatory efforts to limit the use of arbitration will likely leave consumers worse off.
Vern McKinley | Jun 18, 2015
The idea that banks are special was most succinctly summarized by Gerald Corrigan more than 30 years ago in an analysis prepared for the Federal Reserve Bank of Minneapolis, where Corrigan was president at the time. With the help of his mentor, then Federal Reserve Chairman Paul Volcker, his analysis pondered the characteristics of banks that make them special; justified the provision of a supporting safety net for banks based on financial stability concerns; and detailed the costs and restrictions that banks must subject themselves to. But the years since Corrigan’s analysis have seen two severe financial crises,and as the crisis of 2007–2009 clearly revealed, banks are not special, as the safety net was applied to a wide range of nonbank institutions. The Dodd-Frank Act was intended to cut back on the safety net by giving financial authorities wide discretion, but the right approach to rein in the safety net would be to cut back its beneficiaries…
Hester Peirce | Jan 06, 2015
In a new paper for the Mercatus Center at George Mason University, senior research fellow Hester Peirce demonstrates that FINRA is not structured in a way to produce high-quality regulation and is not accountable to the government, the industry, or the public.
Alexander Salter | Dec 04, 2014
In a new study for the Mercatus Center at George Mason University, scholar Alexander William Salter examines several different proposed rules that the Fed could follow. Salter provides a framework to help policymakers better understand how incentives and information can affect monetary policy and discusses discretion-based and rule-based approaches to monetary policy.

Testimony & Comments

Brian Knight | May 12, 2016
The recent rise of “FinTech”—the use of technology to provide financial services in innovative ways—has the potential to significantly change how consumers access financial services. These changes are pressuring existing regulatory structures and norms, and they are creating concern that regulators will hamper needed modernization or fail to prevent a harmful destabilization of the financial system. I commend the OCC for acknowledging that its existing model for regulation could be improved to better match the needs of the current market and for providing an initial framework for how it plans to address innovation within its jurisdiction.
Hester Peirce | Mar 15, 2016
Chairman Shelby, Ranking Member Brown, and Members of the Committee, I am honored to appear before you today as one of the President’s nominees to serve as a member of the U.S. Securities and Exchange Commission. It is a particular privilege to be considered for the SEC together with Professor Lisa Fairfax.
Stephen Matteo Miller | Jan 29, 2016
While higher capital requirements can reduce the likelihood of banking crises, I would like to raise two key issues concerning the proposed policy statement: 1) bank subsidiary capital requirements may be more effective than holding company capital requirements, and 2) the benefit-cost analysis used to analyze the rule could be improved by adding other dimensions to the analysis.
J. W. Verret | Sep 30, 2015
The explosive growth in federally backed loan and guaranty programs has been an appropriate focus of congressional oversight in recent years. The Office of Management and Budget (OMB) estimates the federal government supports over $3 trillion in loans and guarantees. Those loans and guarantees are often shrouded by indirect government support and unreasonable assumptions in government accounting practices. I submit that the Securities Investor Protection Corporation’s (SIPC) provision of securities custody insurance should be an appropriate part of that conversation.
Hester Peirce | Jun 11, 2015
Financial regulation should consist of clear, consistently enforced rules within which customers and financial institutions can freely interact. A well-functioning market enables people who need financing to obtain it efficiently and at a competitive price. Market forces reward financial companies that serve consumers well and discipline firms that fail to provide products and services in a form and at a price that consumers want.
Hester Peirce | May 13, 2015
The Dodd-Frank Wall Street Reform and Consumer Protection Act—does not make another crisis less likely. To the contrary, it sets the stage for another, worse crisis in the future. Government regulation—from bank regulation to housing policy to credit rating agency regulation—played a key role in the crisis. These policies shaped market participants’ behavior in destructive ways. Dodd-Frank continues that pattern.

Charts

Patrick McLaughlin, Chad Reese, Oliver Sherouse | Feb 04, 2016
The Dodd-Frank Wall Street Reform and Consumer Protection Act has been generally associated with an explosion in federal financial regulatory restrictions. RegData permits us to specifically examine which agencies produced regulatory restrictions associated with the law. Dodd-Frank was associated with a substantial increase in the Federal Reserve’s role as a regulator, as its number of regulations jumped 32 percent in the 4 years since the passage of the legislation.

Experts

Videos

Richard Williams, Pietro Peretto, Adam Millsap, Dustin Chambers, William Beach, Patrick McLaughlin, J. W. Verret, Adam Thierer | May 10, 2016
Information, investment and innovation are the engines of economic growth in the 21st century. Yet regulatory accumulation and outdated regulatory processes are preventing both the private and public sectors from effectively using the three “I’s” to solve problems and grow the economy.

Podcasts

Thomas W. Miller, Jr. | June 08, 2016
Thomas Miller talks to host Steve Grzanich on WGN's Opening Bell show about payday lending.

Recent Events

Arnold Kling, Lawrence J. White, | May 02, 2012
Please join Mercatus Center financial services experts Anthony Sanders, Arnold Kling, and Larry J. White in discussing the future of GSEs, Fannie Mae and Freddie Mac, and the government's role in the U.S. housing market.

Books

J. W. Verret | Apr 2016
Dodd–Frank’s Title IV, “The Private Fund Investment Advisers Registration Act,” achieved what the Securities and Exchange Commission (SEC) had tried in vain to do on its own—mandatory SEC registration of advisers to hedge funds.1 Congress, motivated by systemic risk and investor-protection concerns,2 directed the SEC to reinstitute mandatory registration for most advisers to hedge funds and other private funds. In addition, Title IV further limited the pool of potential investors in hedge funds and other private offerings and imposed substantial reporting requirements on private-fund advisers. Title IV will not achieve its objectives of enhancing financial stability and protecting investors—it will impede economic growth instead.
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