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, Robert Greene | Apr 02, 2014
For decades, money market funds (MMFs) were thought to be safe, low-risk investments. The financial crisis of 2007–2009 cast MMFs in a new, less favorable light, which prompted calls for reform. Our paper offers a reform alternative that builds on MMF boards of directors and their well-established responsibility for making key decisions for MMFs. After a brief overview of the regulatory history of MMFs, we describe the responsibilities that boards have under current law, the problems MMFs encountered during the crisis, and market and government responses to these problems. Evidence shows that during the crisis, investors were discerning in deciding whether and when to run; more risky, less liquid funds experienced higher volumes of redemptions. This finding, along with our assessment of funds’ boards of directors’ responsibilities, helps to lay the groundwork for considering the various options for addressing problems still facing MMFs, including our proposal to allow boards to gate their funds when faced by potentially destabilizing redemption pressures.
Todd Zywicki, Robert L. Clarke | Apr 01, 2014
In response to the financial crisis that began in 2008, in 2010 President Obama signed into law the Wall Street Reform and Consumer Protection Act, commonly referred to as the “Dodd-Frank Act." A “centerpiece of the [new law] was the creation of the Consumer Financial Protection Bureau (“CFPB”),” which was established in response to the perception of widespread failures in the federal consumer protection regime with respect to financial products and the belief that these regulatory failures contributed to the financial crisis.
Hester Peirce, Jerry Ellig | Mar 31, 2014
SEC Regulatory Analysis: “A Long Way to Go and a Short Time to Get There”…
Hester Peirce, Ian Robinson, Thomas Stratmann | Feb 27, 2014
This paper presents the results of the Mercatus Center’s Small Bank Survey, which include responses from approximately 200 banks across 41 states with less than $10 billion in assets each, serving mostly rural and small metropolitan markets.
Patrick McLaughlin, Robert Greene | Feb 26, 2014
We apply the methodology of RegData—which quantifies regulations using text analysis of the Code of Federal Regulations (CFR)—to objectively determine the number of new restrictions the Dodd-Frank Act has created and will create. We estimate that Dodd-Frank will increase financial industry regulatory restrictions by 32 percent once all of its rulemakings are finalized, yielding more new restrictions than were created between 1997 and 2010.
Bruce Yandle | Dec 09, 2013
With autumn leaves falling and leftover Halloween jack-o-lanterns still grinning, first estimates for 3Q2013 GDP growth and news of October’s employment went bump in the night and rattled the spirits of Washington’s chatterbox. GDP growth came in with a “lofty” 2.8 percent real growth, which was much more than most soothsayers expected. Tapering is on the way! Or so it seemed. The stock marked tanked. Then the Bureau of Labor Statistics announced that 204,000 jobs had been added to the economy in October; this also exceeded analysts’ expectations. The market recovered; the economy can handle tapering!

Testimony & Comments

Lawrence H. White | Mar 12, 2014
So long as monetary policy is conducted in a discretionary manner, it is important to maintain the independent input of the Reserve Bank presidents on the FOMC. The Reserve Banks should therefore not become mere outposts of the Federal Reserve Board in order to eliminate commercial bankers’ representation on their boards of directors. A better way to remove the potential for conflicts of interest is to require the Federal Reserve System to leave the formation of fiscal and credit-allocation policies to Congress and their execution to the US Treasury.
Hester Peirce | Dec 12, 2013
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. One of the most important new powers is the authority to regulate nonbank financial institutions designated systemically important by the Financial Stability Oversight Council. 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.
Hester Peirce | Dec 03, 2013
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.
Hester Peirce, Robert Greene | Nov 01, 2013
The report was prepared in order to assist the Financial Stability Oversight Council (FSOC) in “its analysis of whether—and how—to consider [asset management firms] for enhanced prudential standards and supervision.”2 A full response to the FSOC’s request would have included an analysis of whether subjecting asset management firms to enhanced prudential standards and supervision would undermine financial stability—an issue that was not addressed in the OFR report.
Arnold Kling | Oct 23, 2013
On August 20, the Federal Reserve Board, Office of Comptroller of the Currency, and Federal Deposit Insurance Corporation posted a proposed rule that would raise supplementary leverage ratio standards for large, systemically important financial institutions (SIFIs). The agencies solicited comments on a list of questions. This comment pertains primarily to question 2, “Would the proposed strengthening of the leverage ratio mitigate public-policy concerns about the regulatory treatment of banking organizations that may pose risks to the broader economy?”…
Hester Peirce, Robert Greene | Sep 17, 2013
We appreciate the opportunity to comment on the Securities and Exchange Commission’s June 13, 2013 notice of proposed rulemaking “Money Market Fund Reform; Amendments to Form PF” (SEC 2013 MMF Proposals). The Mercatus Center at George Mason University is dedicated to bridging the gap between academic ideas and real-world problems and advancing knowledge about the effects of regulation on society. Thus, this comment does not represent the views of any particular affected party or special interest group but is designed to assist the Securities and Exchange Commission (SEC) as it seeks to amend of the regulatory structure governing money market funds (MMFs).

Charts

Veronique de Rugy | Apr 01, 2014
The large numbers that spill across Ex-Im balance sheets concern all US taxpayers. Although names like JP Morgan and TD Bank are listed on these records, taxpayers are ultimately responsible for these liabilities. The US government should not exploit taxpayers’ credit to funnel risk-protected assets to large private corporations. It is past time to put this cash cow for cronies out to pasture.

Experts

Videos

Hester Peirce | December 03, 2013
In her testimony before the House Committee on Small Business, Mercatus Senior Research Fellow Hester Peirce discusses how regulations impact small banks.

Podcasts

Tyler Cowen | September 12, 2013
In his latest book, Average Is Over, Tyler Cowen lays out his prediction for where the U.S. economy is heading on NPR's Morning Edition.

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

Tyler Cowen | Sep 12, 2013
Widely acclaimed as one of the world’s most influential economists, Tyler Cowen returns with his groundbreaking follow-up to the New York Times bestseller The Great Stagnation.
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