Financial Markets

Financial Markets

Research

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…
Jason E. Taylor, Andrea Castillo | Jan 13, 2015
A new study published by the Mercatus Center at George Mason University examines the use of expansionary fiscal policy to stimulate a contracting economy. The study concludes that attempts to use fiscal policy to solve broader economic troubles have failed even by the theory proponents’ own standards. In addition to being poorly timed and targeted, stimulus spending has led to permanent increases in the size and scope of government.
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.
Hester Peirce | Nov 07, 2014
In a new study for the Mercatus Center at George Mason University, scholar Hester Peirce shows that such methods undermine public confidence in the regulatory process and harm regulated industries’ compliance efforts due to uncertain requirements and an ever-changing regulatory landscape.
Jeffrey Rogers Hummel | Sep 16, 2014
Many economists and economic commentators fear that the Federal Reserve does not have an adequate exit strategy from the quantitative easing that took place during the financial crisis. Its bloated balance sheet has allegedly left a looming monetary overhang that the Fed will not be able to manage once the economy returns to normal.

Testimony & Comments

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.
Stephen Matteo Miller | Mar 12, 2015
The Bureau should employ its statutory authority to make exceptions to suspend the credit card database program so that it can inform Congress that the costs of such programs outweigh the benefits.
Hester Peirce, Kristine Johnson | Feb 04, 2015
This comment, which reiterates concerns laid out in the attached opinion piece, does not represent the views of any particular affected party or special interest group but is designed to assist FINRA as it considers implementing the Comprehensive Automated Risk Data System (CARDS).
Hester Peirce, Vera Soliman | Sep 10, 2014
The Bureau initiated its database without due consideration of the problem the Bureau was trying to solve or the costs and benefits of the database. Rather than expanding the database’s potential to cause unintended harm, the Bureau should return to the drawing board.
Jerry Brito, Eli Dourado | Aug 14, 2014
As the Treasury Department’s Financial Crimes Enforcement Network has found, certain virtual currency businesses are money service businesses. Typically such money service businesses engage in money transmission and as a result must acquire a money transmitter license in each state in which they do business.

Research Summaries & Toolkits

Speeches & Presentations

Expert Commentary

Jun 30, 2015

Earlier this year, the Republican-controlled House Financial Services Committee voted out 11 bipartisan reforms to the Dodd-Frank Act, including two (H.R. 1265 and H.R. 1195) that would write into law certain practices that the Consumer Financial Protection Bureau has voluntarily adopted. And while the committee's ranking member, Rep. Maxine Waters, D-Calif., expressed support for the mandates as harmless, she also criticized them for "unnecessarily" codifying into law policies that the bureau already put into place.
Jun 09, 2015

The popular cryptocurrency Bitcoin is fast approaching a critical technical challenge that will fundamentally shape the course of its future. If unaddressed, an arbitrary protocol quirk implemented by Bitcoin creator Satoshi Nakamoto as a short-term security measure could soon undermine Bitcoin’s scalability, usability, and even its long-term viability—although, as always, opinions differ.
Jun 03, 2015

Congress is marking the five-year anniversary of Dodd-Frank with legislative efforts in the financial regulatory arena. Improvements to regulatory process are one component of these initiatives. Procedural reforms are not very glamorous, but they are essential in the pursuit of effective regulatory oversight of the financial industry.
May 20, 2015

Dodd-Frank is rounding the bend to its five-year mark. Its vocal cheering section does not seem to notice that it's looking a bit haggard. One area in which its weakness is evident is over-the-counter derivatives reform, which accounts for approximately 20 percent of Dodd-Frank's pages and much of its rhetoric. Dodd-Frank relies on central counterparty clearinghouses to bring order to over-the-counter derivatives-financial contracts that help companies manage their risks. Although Title VIII of the Act gives a nod to clearinghouses as a potential source of new risk, that concern gets lost in all the cheering for clearing.
Apr 29, 2015

The CFPB was created by Dodd-Frank to protect consumers as they engage in financial transactions. The complexity and importance of consumer financial products and services, the champions of the bureau reasoned, warranted the formation of a new agency charged specifically with looking out for consumers' best interests. The reality is not so rosy.
Apr 22, 2015

One of Dodd-Frank's aspirations was increased competition to dilute the power of large financial institutions. The status quo, however, plays right into impatient regulators' hands. It's easy to force changes in the global financial industry by nudging-gently or otherwise-large banks to fall in line with regulators' wishes. Bank regulators are not shy about exercising this kind of control. As convenient as such regulatory strong-arming might seem to be, it sidesteps the regulatory processes designed to ensure accountability, public input, and transparency.

Charts

This week’s chart is a re-creation of a chart produced by the Richmond Fed. The share of financial sector liabilities subject to implicit or explicit government protection from losses grew from 45 percent in 1999 to 60 percent in 2013 and amounts to a staggering $26 trillion.

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.
Stephen Matteo Miller is a senior research fellow at the Mercatus Center.
Hester Peirce is a senior research fellow at the Mercatus Center at George Mason University and director for the Financial Markets Working Group. Her primary research interests relate to the regulation of the financial markets.

Podcasts

Todd Zywicki | April 24, 2015
Coauthor of the book “Consumer Credit and the American Economy” Todd Zywicki discusses how easily-available credit helps American families through tough times and insulates them from economic turndowns in this segment on Ed Dean Radio.

Upcoming Events

Sep 09, 2015
Luigi Zingales, one of the world’s foremost thinkers on financial development and capitalism, will join Tyler Cowen for a conversation about the policies that will shape capitalism moving into the future.

Recent Events

Please join us for an important conference to discuss how well the financial system is serving entrepreneurs, businesses, and the American people.

Books

Jerry Brito, Andrea Castillo | Jan 23, 2014
Como la primera moneda digital descentralizada del mundo, Bitcoin tiene el potencial de revolucionar los sistemas de pago en línea de una manera que beneficia a los consumidores y las empresas. En lugar de utilizar un intermediario, como PayPal, o entregar información de tarjeta de crédito a un tercer partido para su verificación—ya que los dos incluyen cargos de transacción y otras restricciones— Bitcoin permite que los individuos paguen directamente entre sí para bienes o servicios.

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.
' '