Financial Markets

Financial Markets

Research

David Beckworth | Jun 15, 2016
Visiting Scholar David Beckworth demonstrates that poor monetary policy set by the European Central Bank (ECB) played a key role in the two recessions, sparked the sovereign debt crisis experienced by several Eurozone countries, and exacerbated the impact of the austerity programs.
Bruce Yandle | Jun 01, 2016
Near-zero GDP growth. Strong dollar. Weak exports. Factory recession. Fed hesitancy. Low inflation and low interest rates. Solid consumer spending. Accelerating construction. Rising home sales. China turning the corner? These keywords seen frequently in recent news stories pretty well describe the 2016 midyear economy.
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.
Scott Sumner | Mar 2016
There is a great deal of academic research suggesting that monetary policy should use a rules-based approach (e.g., Kydland and Prescott 1977, McCallum 1985, Plosser 2014). However, Fed officials have generally been opposed to any sort of rigid policy rule.
Bruce Yandle | Mar 01, 2016
With falling exports induced by a strong dollar, declining investment in the energy sector driven by falling oil prices, and a Chinese economy that continues to weaken, the US economy seems to be locked in low gear. GDP growth for 4Q2015 came in at a snail-paced 0.7 percent, giving 2.4 percent growth for the year, the same as for 2014. Pass the word. The world is flat!
Bruce Yandle | Dec 01, 2015
Fed uncertainty, the levitated dollar, China’s continuing weak economy, Europe’s mixed bag, and US political crazy season combine to yield a slow but somehow sound winter economy. Let’s take it from the top. The most recent third quarter 2015 GDP growth estimate arrived to the tune of 1.5 percent.

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.
Holly A. Bell | Mar 16, 2016
Ill-considered regulation regarding algorithmic trading will adversely affect the ability of legitimate market participants to contribute to liquidity, price discovery, narrow spreads, and low trading costs. The CFTC shares with market participants a growing interest in algorithmic trading and its potential effects on the markets. Rather than working with market participants cooperatively, the Commission proposes a prescriptive regime applicable to virtually any firm that trades in the futures (and swaps) markets. If finalized, this proposal will establish an approach dominated by enforcement that will chill firms’ willingness to work with the Commission to address emerging problems in the area. In addition, by opening firms’ source code to unlimited inspection by the Commission and others, the proposal creates dangerous vulnerabilities for an asset of utmost importance to trading firms.
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.
Thomas W. Miller, Jr. | Feb 11, 2016
Conversations about consumer credit often reflect utopian visions of the world. Many people imagine that a few tweaks to regulations can ensure that everyone has the money needed to feed, clothe, and shelter the family. According to this logic, if households need to borrow money, lenders will treat them fairly, charge little, and always be repaid. But no matter how hard we all try, a well-crafted regulatory framework cannot bring us this utopia. Deliberate, empirically informed regulators, however, can do much to preserve and expand consumers’ options along the nonbank-supplied small-dollar loan landscape.
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.

Research Summaries & Toolkits

Speeches & Presentations

Expert Commentary

Jul 20, 2016

In the post-Dodd-Frank world, understanding which regulations are relevant to a business’s activities has become immensely more difficult. Many sectors of the economy were newly exposed to regulations from a multitude of unfamiliar agencies. Duplicative and contradictory rules became a fact of life.
Jul 19, 2016

The CHOICE Act has much to commend, but incorporating historical lessons would make it more effective at ensuring that the right parties are held accountable for their misdeeds without harming the innocent in the process.
Jul 11, 2016

Despite its manifest flaws, the DOJ and OCC argued that the Supreme Court should not hear Madden at this time, in part because the case was not yet final and may ultimately be resolved correctly. However, this delay is causing real harm to borrowers now, and there is no guarantee the resolution will be quick or correct.
Jul 05, 2016

... it’s worth taking a moment to consider that in a policy world that often finds itself leaping from crisis to crisis, it can be a daunting challenge to draw attention to a complex issue like regulatory reform long enough for policymakers to craft thoughtful proposals. These pieces of thought leadership look to the horizon ahead, an effort that will eventually bear fruit even if they don’t immediately get signed into law.
Jun 28, 2016

None of this is to say that Hensarling's efforts represent a "silver bullet." If there's one consensus about the U.S. federal financial regulatory regime, it is that it was imperfect both pre- and post-Dodd-Frank. Policymakers will always face challenges trying to prevent "the next crisis" armed only with the knowledge of what "the last crisis" looked like.
Jun 27, 2016

David Beckworth, economist and research fellow at the Mercatus Center, joined Federalist Radio to discuss Britain’s exit from the EU and how it will impact the global economy.

Charts

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

Tyler Cowen is Holbert L. Harris Chair of Economics at George Mason University and serves as chairman and general director of the Mercatus Center at George Mason University. With colleague Alex Tabarrok, Cowen is coauthor of the popular economics blog Marginal Revolution and cofounder of the online educational platform Marginal Revolution University.
Garett Jones is a senior scholar and BB&T Professor for the Study of Capitalism at the Mercatus Center and an associate professor of economics at George Mason University. He specializes in macroeconomics, monetary economics, and the microfoundations of economic growth.
Arnold Kling is a Mercatus Center–affiliated senior scholar at George Mason University and a member of the Financial Markets Working Group. He specializes in housing-finance policy, financial institutions, macroeconomics, and the inside workings of America’s federal financial institutions. He also is an adjunct scholar at the Cato Institute in Washington, DC.
Brian Knight is a Senior Research Fellow for the Financial Markets Working Group at the Mercatus Center at George Mason University.
Stephen Matteo Miller is a senior research fellow at the Mercatus Center. He is interested in the origins, effects and resolution of market crashes and financial crises.

Podcasts

David Beckworth | July 18, 2016
Robert Hall, professor of economics at Stanford University and senior fellow at the Hoover Institution, has written on macroeconomic issues since the 1960s. Bob is also the chairman of the National Bureau of Economic Research’s Committee on Business Cycle Dating, which maintains the chronology of U.S. business cycles. He joins the show to discuss the difficulties of measuring gross domestic product and dating the beginning and end of recessions. David and Bob also talk about the pros and cons of nominal GDP targeting and price level targeting. Finally, Bob shares his thoughts on why our economy has performed so lethargically since the Great Recession.

Upcoming Events

Recent Events

Are 20th century banking regulations compatible with 21st century banking technology? How should policymakers balance the promise of innovation against the potential risks to consumers?

Books

Jerry Brito, Andrea Castillo | May 03, 2016
As the world’s first decentralized digital currency, Bitcoin has the potential to revolutionize online payment systems and commerce in ways that benefit both consumers and businesses. Individuals can now avoid using an intermediary such as PayPal or submitting credit card information to a third party for verification—both of which often involve transaction fees, restrictions, and security risks—and instead use bitcoins to pay each other directly for goods or services.

Media Clippings

Hester Peirce | Nov 13, 2014
This excerpt originally appeared in Bloomberg.
Stephen Matteo Miller | Nov 03, 2014
This excerpt originally appeared in the Washington Examiner.
Todd Zywicki | Oct 20, 2014
This excerpt originally appeared in the Washington Examiner.
Jason J. Fichtner | Jul 24, 2014
This excerpt originally appeared in FOX Business.
Jason J. Fichtner | Jul 17, 2014
This excerpt originally appeared in FOX Business.
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