Financial Regulation

Financial Regulation

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.
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.
Robert L. Clarke, Todd Zywicki | Nov 21, 2013
The Consumer Financial Protection Bureau (CFPB) is considering new regulation of payday lending and bank overdraft protection. The Dodd-Frank Act, which established the CFPB, recognizes that consumers benefit from competition among providers of consumer credit products. That law requires the CFPB to preserve fair competition by providing consistent regulatory treatment of similar products offered by both bank and nonbank lenders. We illustrate how this mandate for fair competition applies to the regulation of payday lending and bank overdraft protection, products that are offered by different entities but attract an overlapping customer base, compete with each other directly, and raise similar consumer protection concerns. Unequal regulation would provide a competitive advantage for one product over another, resulting in reduced choice and higher prices for consumers, without a corresponding increase in consumer protection. Therefore, as the CFPB considers new regulation of these products, it should be careful to regulate them similarly to preserve fair competition.
G. Michael Flores, Todd Zywicki | Nov 04, 2013
The Consumer Financial Protection Bureau (CFPB) released its initial analysis of bank overdraft programs in a June 2013 white paper. We review the report and provide commentary on its methodology, its preliminary conclusions, and gaps in its analysis. We provide a synopsis of findings from previous third-party analyses to lay the foundation for our response, and then we follow the paper’s organizational structure as we discuss specific points it makes. We also identify the larger policy questions of access to credit, alternative sources of credit, and the economic benefit attained by the use of overdrafts. These questions must be addressed before the bureau can make any findings of consumer harm that would justify new regulation and the resultant unintended consequences of limiting options to the consumers the CFPB is structured to protect.

Testimony & Comments

Holly A. Bell | Dec 13, 2013
Enabling traders and exchanges to continue to work with regulators in a cooperative environment that recognizes the significant market incentives shared by all stakeholders to ensure trading system and market integrity is the best approach as we transition to technology-based markets.
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).

Speeches & Presentations

Expert Commentary

Apr 06, 2014

A recent report conducted through internal investigation at the Consumer Financial Protection Bureau (CFPB) found multiple instances of employee discrimination and harassment. Investigator Misty Raucci claimed, “I found that the general environment in Consumer Response is one of exclusion, retaliation, discrimination, nepotism, demoralization, devaluation, and other offensive working conditions which constitute a toxic workplace for many of its employees.”…
Mar 26, 2014

Last Thursday, without any fanfare, the Office of the Comptroller of the Currency released the economic analysis for the Volcker Rule. The timing-approximately three months after the OCC and its fellow regulators released the final rule-and the substance of the analysis are troubling. Financial regulators' failure to conduct and use thorough economic analysis in their decisionmaking means that they are reshaping our post-crisis financial markets without critical information about whether new rules will do more harm than good.
Mar 20, 2014

Small banks didn't cause the financial crisis that led to the Dodd-Frank Wall Street Reform and Consumer Protection Act - and the act's framers said they didn't intend for the law's burdensome requirements to hit smaller institutions. But the results of our recent small-bank survey published through the Mercatus Center demonstrate the futility of these good intentions. Small banks are facing rising compliance costs and are finding it harder to serve their customers.
Mar 12, 2014

Thanks to crowdfunding, Lammily, an intentionally average-looking doll designed to compete with Barbie's unattainable perfection, should be on the market by year's end. If the SEC permits crowdfunders to share in the profits of these new ventures through direct equity participation without unreasonable constraints, we can expect to see many more innovative items made available to consumers.
Feb 12, 2014

The financial crisis spawned a whole new set of regulatory requirements and oversight bodies for banks. Newly-empowered regulators are supposed to stop banks from doing stupid things that harm individual consumers and the financial system.
Feb 10, 2014

Things got pretty heated on Jan. 28 when lawmakers questioned Richard Cordray — director of the Bureau of Consumer Financial Protection — about the bureau’s monitoring of more than 900 million U.S. credit card accounts. Cordray bristled at suggestions that the data could be used for unseemly purposes.

Charts

The charts below show that both the number of US small banks (which we define as banks with $10 billion or less in assets) and their share of US banking assets and domestic deposits declined substantially between 2000 and 2008. Simultaneously, the five largest US banks’ share of US banking assets and domestic deposits increased markedly.

Experts

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.
Hester Peirce is a senior research fellow at the Mercatus Center at George Mason University. Her primary research interests relate to the regulation of the financial markets.
J.W. Verret is a member of the Financial Markets Working Group at the Mercatus Center and an assistant professor at George Mason University School of Law. His primary research interests are corporate governance, securities regulation, and executive compensation.
Lawrence H. White is a professor of economics at George Mason University. His primary research interests include monetary theory and policy, history of banking and financial institutions, and central banking.

Podcasts

Hester Peirce | August 22, 2013
Hester Peirce discusses the Push to Implement Dodd-Frank on Eye on Your Money

Recent Events

This event has been postponed. This page will be updated once arrangements have been made.

Books

Media Clippings

Hester Peirce | Feb 12, 2014
Hester Peirce quoted at Reuters.
Patrick McLaughlin, Robert Greene | Jul 22, 2013
The researchers examined data from the Code of Federal Regulations and determined that over 7,000 new financial rules were implemented between 1999 and 2008, bringing the total number of regulations to 47,494 just before the crash.
Veronique de Rugy | Jun 20, 2013
Veronique de Rugy, a senior research fellow at the Mercatus Center at George Mason University, said the public tends to overlook the fact that the SBA is largely irrelevant in the overall small business lending market.
Keith Hall | Jun 09, 2013
Giving hundreds of government employees advance notice of a policy decision “is way too many,” said Hall, now a senior fellow at George Mason University’s Mercatus Center. “I’ve done my share of working on policy issues and policy decisions, and you just don’t spread that stuff around like that.”…
Keith Hall | Jun 07, 2013
Temporary workers typically serve as a bellwether for the labor market, he says in a telephone interview. They're the first to get dumped when business starts to go bad…
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