Financial Markets

Research

How to Fix Our Broken Proxy Advisory System James K. Glassman, J. W. Verret \| Apr 16, 2013 A rule enacted by the Securities and Exchange Commission in 2003 required institutions to adopt and disclose policies for proxy voting that were intended to minimize conflicts between the institutions’ interests and those of their shareholders. An SEC staff interpretation of that rule led to a result almost the opposite of the ruling’s intent. Institutions could easily protect themselves from legal liability by shifting responsibility to proxy advisory firms, which acquired increasing power over corporate governance, to the detriment of shareholders.	The Federal Reserve's Expanding Regulatory Umbrella Hester Peirce, Robert Greene \| Apr 03, 2013 The Federal Reserve’s performance as a regulator in the years leading up to the 2007–08 crisis earned it widespread criticism. In the wake of the crisis, its fate as a regulator was uncertain as Congress considered regulatory reforms. Some reform proposals would have substantially diminished the Federal Reserve’s regulatory role, but the financial reform ultimately signed into law in July 2010—Dodd- Frank—instead increased the Federal Reserve’s regulatory power.
An Introduction to U.S. Monetary Policy Steven Horwitz \| Apr 02, 2013 This study examines the history and operation of the Federal Reserve System. It explores the Fed’s origins in American economic history and emphasizes the political compromises that produced it.	Evaluating the Centralized-Layers Approach to U.S. Federal Financial Regulation David VanHoose \| Apr 02, 2013 This paper draws on the literature that applies economic analysis of regulation to evaluate Dodd-Frank’s centralized-layers financial regulatory structure, which continues a shift toward greater horizontal consolidation of regulation at the federal level but now also vertically integrates US financial regulation within the FSOC.
Resolving Too-Big-To-Fail Banks in the United States James R. Barth, Apanard Prabha \| Mar 07, 2013 Banks have failed throughout US history. The worst years for such failures were during the Great Depression: roughly 9,000 of about 25,000 banks failed, with nearly half of the failures occurring in 1933 alone. Depositors everywhere became concerned that their banks were on the verge of insolvency, and they rushed to withdraw their funds. This forced banks to sell off their assets at fire sale prices, thereby turning illiquidity problems into insolvency problems throughout the banking industry. The result was a major disruption in the payments system and a severe tightening of available credit, with a devastating impact on economic activity.	The Economic Situation, March 2013 Bruce Yandle \| Mar 01, 2013 There was only one lane open as I made my trip to Atlanta; the other three were blocked with those unhappy yellow and black make-believe barrels used by the highway folks. Traffic flow was constrained by efforts to repair potholes and broken pavement. We in the slow lane had little choice in the matter. Instead of 70, we were slowed to 20 miles per hour. We had to accept our fate, or find another route at the next exit.

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Testimony & Comments

Financial Market Utilities Hester Peirce \| May 06, 2013 The proposed rules would implement sections 806(a) and (c) of Dodd-Frank, which allow the Board to authorize Reserve Banks to establish and maintain accounts for, provide certain services to,[1] and pay interest on balances maintained by or on behalf of financial market utilities (FMUs) that are designated by the Financial Stability Oversight Council (FSOC) as systemically important or likely to become systemically important.	Building a Sustainable Housing Finance System: Examining Regulatory Impediments to Private Investment Capital Arnold Kling \| Apr 24, 2013 I do not believe that the 30-year fixed-rate mortgage can be issued in large volume without taxpay- ers becoming liable for interest-rate risk. Conversely, if we reform the housing system so that the private sector truly bears the risk, then borrowers would encounter a large differential between the cost of a 30-year fixed-rate mortgage and the cost of a loan with an interest rate that is fixed for only 5 years. Borrowers should be making their choices based on this true cost differential.
The Administration's Auto Bailouts and the Delphi Pension Decisions: Who Picked the Winners and Losers? Todd Zywicki \| Jul 10, 2012 Much of the government’s political intervention in the bankruptcy cases appears to have been motivated to benefit the UAW rather than the companies themselves over U.S. taxpayers, who put billions of dollars at risk to fund the bailouts.	Fractional Reserve Banking Lawrence H. White \| Jun 28, 2012 Chairman Paul and members of the subcommittee: Thank you for the opportunity to discuss the fractional- reserve character of modern banking, its positives and negatives, its relationship to financial instability, and to offer my thoughts on how to promote greater banking stability. I will begin by describing the historical origins of fractional-reserve banking (hereafter FRB), then move on to the effect of FRB on the money supply process, its connection to bank runs and financial instability, and finally the reforms needed to improve our banking system.
The Impacts of Overdraft Programs on Consumers Todd Zywicki, Asa Skinner \| Jun 28, 2012 Profits gained from overdraft protection have been used by banks to expand services and accessibility for customers both rich and poor, and limiting overdraft protection may threaten many of the benefits that it makes possible.	Oversight of the Federal Housing Administration's Reverse Mortgage Program for Seniors Anthony B. Sanders \| May 09, 2012 A reverse mortgage for seniors is a reasonable idea, but should not be guaranteed by the Federal government. It is an ownership decision and the Federal government must stop trying to micromanage this decision, particularly since there is an easy alternative that does not require government guarantees.

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Research Summaries & Toolkits

The Risks of New Restrictions on Payday Lending and Title Lending

Todd Zywicki

Although there is no evidence that non-traditional lending products such as payday and title lending contributed to the financial crisis, Congress is considering new regulations on such products.

Speeches & Presentations

Regulation and High Reliability Organizations

Jerry Ellig | May 28, 2009

Jerry Ellig presents before the Department of Energy, Office of Health, Safety and Security in the Visiting Speakers Program about regulation in high reliability organizations, such as…

Symposium on Shareholder Access

Susan Dudley, | Dec 10, 2003

Expert Commentary

If The IRS Bothers You, So Should The FSOC and CFPB Real Clear Markets By Hester Peirce \| May 22, 2013 The recent revelations about the goings-on at the Internal Revenue Service have gotten a lot of attention. When the patina of government impartiality shows itself so disturbingly thin, people of all political stripes sit up and take notice. The hard lessons drawn from the IRS experience should inform the broader policy debates about regulatory structure and oversight.	The Federal Reserve Ignores Its Own Role in the Financial Crisis U.S. News and World Report By Steven Horwitz \| May 20, 2013 Since the financial meltdown in 2008, the Federal Reserve's range of powers have expanded, as have the kinds of financial institutions it monitors and regulates. Fed Chairman Ben Bernanke is now saying that the Fed's oversight has expanded beyond strictly financial institutions to wide swaths of the economy that might, in his words, provide evidence of "emerging vulnerabilities."
The SEC's Cross Border Regulatory Creep Real Clear Markets By Hester Peirce \| May 08, 2013 Last week, the Securities and Exchange Commission proposed its cross-border security-based swaps rule under Dodd-Frank with great fanfare and a unanimous commission vote. Many outside the SEC have deemed the proposal a success, presumably because it is not as bad as the approach taken by the Commodity Futures Trading Commission that has angered regulators the world over. Exceeding the CFTC's low bar is a pretty poor metric for assessing regulatory success.	Bank Regulators Never 'Encourage,' They Require Real Clear Markets By Hester Peirce \| Apr 24, 2013 The National Credit Union Administration marked Earth Day on Monday by issuing a press release celebrating the agency's various green initiatives. Along with conserving energy and urging employees to bicycle to work and grow plants in their offices, the NCUA "encourage[s] credit unions to make the same commitment to incorporating greater environmental awareness into their daily operations." This statement sounds harmless enough, but-given the complexity of the relationship between regulators and the entities they regulate-even statements urging "credit unions to lead in environmental stewardship" must be made with care.
The CFPB Must Be More Transparent U.S. News and World Report By Hester Peirce \| Apr 23, 2013 Richard Cordray on April 23 will present the semiannual report of the Bureau of Consumer Financial Protection (CFPB) to the Senate Banking Committee. Cordray, who was appointed by President Obama to be the bureau's director, will likely use the opportunity to remind the senators how frequently he appears before them to testify. However, neither the Senate nor the American people should be duped into believing that, by virtue of his frequent trips to the Hill, he is accountable to them or anyone else.	Fixing the Broken Proxy System Bloomberg By J. W. Verret, James K. Glassman \| Apr 23, 2013 Proxy season has begun, and it’s expected to be a hot one. More than half of publicly listed U.S. companies will hold annual meetings between now and the end of June. There will be votes on more than 200,000 questions, ranging from approving auditors to disclosing political contributions.

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Charts

Update: Jobs Loss and Creation Since the Recovery Act

Using the most recent quarter of stimulus data from Recovery.gov and data from the Bureau of Labor Statistics, this chart by Mercatus Center Senior Research Fellow Veronique de Rugy puts job creation…

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Experts

Tyler Cowen

Tyler Cowen is the general director at the Mercatus Center and the Holbert C. Harris Professor of Economics at George Mason University.

Garett Jones

Garett Jones is a senior scholar at the Mercatus Center at George Mason University. His primary research interests include macroeconomics, monetary economics, and the microfoundations of economic growth.

Arnold Kling

Arnold Kling is an affiliated senior scholar at the Mercatus Center at George Mason University where he is also a member of the Financial Markets Working Group. He draws on his experience at Freddie Mac and the Federal Reserve to increase understanding of monetary policy, the regulation “anomaly,” and the inside workings of America's federal financial institutions.

Hester Peirce

Hester Peirce is a senior research fellow at the Mercatus Center at George Mason University. Peirce's primary research interests relate to the regulation of the financial markets.

Anthony B. Sanders

Anthony B. Sanders is a senior scholar at the Mercatus Center and the Distinguished Professor of Real Estate Finance at the School of Management at George Mason University. His primary research interests include financial institutions and capital markets with particular emphasis on real estate finance and investment.

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Videos

Anthony Sanders Discusses The Low Down on Fannie's Loans on CNBC

Anthony B. Sanders | March 13, 2013

Anthony Sanders Discusses the Decline in Home Sales on Fox Business

Anthony B. Sanders | January 22, 2013

Podcasts

Jerry Brito Discusses Bitcoin on NPR Marketplace

Jerry Brito | May 17, 2013

Jerry Brito Discusses Bitcoin on NPR Marketplace

Download the MP3

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Recent Events

New York City Symposium: Advancing Liberty, Creating Change

Please join us for our upcoming symposium, co-hosted with the Institute for Humane Studies. The keynote speaker will be public opinion pollster Scott Rasmussen. The founder of Rasmussen Reports, Scott is a leading expert on political trends. His latest book, just released, is The People's Money: How Voters Will Balance the Budget and Eliminate the Federal Debt..

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Books

Dodd-Frank: What It Does and Why It's Flawed

| Jan 08, 2013

More than 360,000 words in length, the Dodd-Frank Wall Street Reform and Consumer Protection Act is the longest and most complex piece of financial legislation in American history. The nature and magnitude of its effects, both intended and unintended, will become clearer as regulators exercise the broad discretion given to them under the law.

More Books

More Media Clippings

How to Fix Our Broken Proxy Advisory System James K. Glassman, J. W. Verret \| Apr 16, 2013 A rule enacted by the Securities and Exchange Commission in 2003 required institutions to adopt and disclose policies for proxy voting that were intended to minimize conflicts between the institutions’ interests and those of their shareholders. An SEC staff interpretation of that rule led to a result almost the opposite of the ruling’s intent. Institutions could easily protect themselves from legal liability by shifting responsibility to proxy advisory firms, which acquired increasing power over corporate governance, to the detriment of shareholders.	The Federal Reserve's Expanding Regulatory Umbrella Hester Peirce, Robert Greene \| Apr 03, 2013 The Federal Reserve’s performance as a regulator in the years leading up to the 2007–08 crisis earned it widespread criticism. In the wake of the crisis, its fate as a regulator was uncertain as Congress considered regulatory reforms. Some reform proposals would have substantially diminished the Federal Reserve’s regulatory role, but the financial reform ultimately signed into law in July 2010—Dodd- Frank—instead increased the Federal Reserve’s regulatory power.
An Introduction to U.S. Monetary Policy Steven Horwitz \| Apr 02, 2013 This study examines the history and operation of the Federal Reserve System. It explores the Fed’s origins in American economic history and emphasizes the political compromises that produced it.	Evaluating the Centralized-Layers Approach to U.S. Federal Financial Regulation David VanHoose \| Apr 02, 2013 This paper draws on the literature that applies economic analysis of regulation to evaluate Dodd-Frank’s centralized-layers financial regulatory structure, which continues a shift toward greater horizontal consolidation of regulation at the federal level but now also vertically integrates US financial regulation within the FSOC.
Resolving Too-Big-To-Fail Banks in the United States James R. Barth, Apanard Prabha \| Mar 07, 2013 Banks have failed throughout US history. The worst years for such failures were during the Great Depression: roughly 9,000 of about 25,000 banks failed, with nearly half of the failures occurring in 1933 alone. Depositors everywhere became concerned that their banks were on the verge of insolvency, and they rushed to withdraw their funds. This forced banks to sell off their assets at fire sale prices, thereby turning illiquidity problems into insolvency problems throughout the banking industry. The result was a major disruption in the payments system and a severe tightening of available credit, with a devastating impact on economic activity.	The Economic Situation, March 2013 Bruce Yandle \| Mar 01, 2013 There was only one lane open as I made my trip to Atlanta; the other three were blocked with those unhappy yellow and black make-believe barrels used by the highway folks. Traffic flow was constrained by efforts to repair potholes and broken pavement. We in the slow lane had little choice in the matter. Instead of 70, we were slowed to 20 miles per hour. We had to accept our fate, or find another route at the next exit.

Financial Market Utilities Hester Peirce \| May 06, 2013 The proposed rules would implement sections 806(a) and (c) of Dodd-Frank, which allow the Board to authorize Reserve Banks to establish and maintain accounts for, provide certain services to,[1] and pay interest on balances maintained by or on behalf of financial market utilities (FMUs) that are designated by the Financial Stability Oversight Council (FSOC) as systemically important or likely to become systemically important.	Building a Sustainable Housing Finance System: Examining Regulatory Impediments to Private Investment Capital Arnold Kling \| Apr 24, 2013 I do not believe that the 30-year fixed-rate mortgage can be issued in large volume without taxpay- ers becoming liable for interest-rate risk. Conversely, if we reform the housing system so that the private sector truly bears the risk, then borrowers would encounter a large differential between the cost of a 30-year fixed-rate mortgage and the cost of a loan with an interest rate that is fixed for only 5 years. Borrowers should be making their choices based on this true cost differential.
The Administration's Auto Bailouts and the Delphi Pension Decisions: Who Picked the Winners and Losers? Todd Zywicki \| Jul 10, 2012 Much of the government’s political intervention in the bankruptcy cases appears to have been motivated to benefit the UAW rather than the companies themselves over U.S. taxpayers, who put billions of dollars at risk to fund the bailouts.	Fractional Reserve Banking Lawrence H. White \| Jun 28, 2012 Chairman Paul and members of the subcommittee: Thank you for the opportunity to discuss the fractional- reserve character of modern banking, its positives and negatives, its relationship to financial instability, and to offer my thoughts on how to promote greater banking stability. I will begin by describing the historical origins of fractional-reserve banking (hereafter FRB), then move on to the effect of FRB on the money supply process, its connection to bank runs and financial instability, and finally the reforms needed to improve our banking system.
The Impacts of Overdraft Programs on Consumers Todd Zywicki, Asa Skinner \| Jun 28, 2012 Profits gained from overdraft protection have been used by banks to expand services and accessibility for customers both rich and poor, and limiting overdraft protection may threaten many of the benefits that it makes possible.	Oversight of the Federal Housing Administration's Reverse Mortgage Program for Seniors Anthony B. Sanders \| May 09, 2012 A reverse mortgage for seniors is a reasonable idea, but should not be guaranteed by the Federal government. It is an ownership decision and the Federal government must stop trying to micromanage this decision, particularly since there is an easy alternative that does not require government guarantees.

If The IRS Bothers You, So Should The FSOC and CFPB Real Clear Markets By Hester Peirce \| May 22, 2013 The recent revelations about the goings-on at the Internal Revenue Service have gotten a lot of attention. When the patina of government impartiality shows itself so disturbingly thin, people of all political stripes sit up and take notice. The hard lessons drawn from the IRS experience should inform the broader policy debates about regulatory structure and oversight.	The Federal Reserve Ignores Its Own Role in the Financial Crisis U.S. News and World Report By Steven Horwitz \| May 20, 2013 Since the financial meltdown in 2008, the Federal Reserve's range of powers have expanded, as have the kinds of financial institutions it monitors and regulates. Fed Chairman Ben Bernanke is now saying that the Fed's oversight has expanded beyond strictly financial institutions to wide swaths of the economy that might, in his words, provide evidence of "emerging vulnerabilities."
The SEC's Cross Border Regulatory Creep Real Clear Markets By Hester Peirce \| May 08, 2013 Last week, the Securities and Exchange Commission proposed its cross-border security-based swaps rule under Dodd-Frank with great fanfare and a unanimous commission vote. Many outside the SEC have deemed the proposal a success, presumably because it is not as bad as the approach taken by the Commodity Futures Trading Commission that has angered regulators the world over. Exceeding the CFTC's low bar is a pretty poor metric for assessing regulatory success.	Bank Regulators Never 'Encourage,' They Require Real Clear Markets By Hester Peirce \| Apr 24, 2013 The National Credit Union Administration marked Earth Day on Monday by issuing a press release celebrating the agency's various green initiatives. Along with conserving energy and urging employees to bicycle to work and grow plants in their offices, the NCUA "encourage[s] credit unions to make the same commitment to incorporating greater environmental awareness into their daily operations." This statement sounds harmless enough, but-given the complexity of the relationship between regulators and the entities they regulate-even statements urging "credit unions to lead in environmental stewardship" must be made with care.
The CFPB Must Be More Transparent U.S. News and World Report By Hester Peirce \| Apr 23, 2013 Richard Cordray on April 23 will present the semiannual report of the Bureau of Consumer Financial Protection (CFPB) to the Senate Banking Committee. Cordray, who was appointed by President Obama to be the bureau's director, will likely use the opportunity to remind the senators how frequently he appears before them to testify. However, neither the Senate nor the American people should be duped into believing that, by virtue of his frequent trips to the Hill, he is accountable to them or anyone else.	Fixing the Broken Proxy System Bloomberg By J. W. Verret, James K. Glassman \| Apr 23, 2013 Proxy season has begun, and it’s expected to be a hot one. More than half of publicly listed U.S. companies will hold annual meetings between now and the end of June. There will be votes on more than 200,000 questions, ranging from approving auditors to disclosing political contributions.