Financial Regulation

Research

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.	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.
The Failure of Risk-Based Capital Regulation Thomas L. Hogan, Neil Meredith, Xuhao Pan \| Jan 31, 2013 In this policy brief, the authors explain the fundamentals of risk-based capital (RBC) regulation and discuss some potential shortcomings of this system. We propose that the Fed end its use of RBC regulation and return to the use of simple capital ratios as measures of bank risk.	The Economics and Regulation of Network Branded Prepaid Cards Todd Zywicki \| Jan 15, 2013 This paper describes the current economic and regulatory landscape for prepaid cards. The market appears to be robustly competitive, as recent years have seen declining costs and increasing functionality as well as entry of major players such as American Express and several large banks. Nor is there any evidence that consumers systematically err in the cards that they choose. Absent a demonstrable competitive market failure or systematic consumer abuse, prescriptive regulation of the terms and substance of prepaid cards would likely have unintended consequences that would exceed the benefits to consumers. On the other hand, there are some regulations that might be enacted that could promote competition and consumer welfare in this rapidly evolving market.

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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.	Measuring the Costs and Benefits of New Rules J. W. Verret \| Apr 17, 2012 After a careful review of the legislative requirements that the SEC consider investor protection, efficiency, competition and capital formation in adopting new rules, I would like to simply offer a list of six items that would demonstrate a sincere commitment by the SEC to fulfill its statutory mission. The first five I will list are in fact required by law if one carefully reads the legislative and judicial history of the SEC’s mandate to consider the economic impact of new rules.
Fixing the Watchdog: Legislative Proposals to Improve And Enhance the Securities and Exchange Commission J. W. Verret \| Sep 15, 2011 J.W. Verret testified before the House Committee on Financial Services about proposals to improve the Securities and Exchange Commission (SEC).	Who's Watching the Watchmen? Todd Zywicki \| May 24, 2011 Todd Zywicki testified before the House Subcommittee on TARP, Financial Services and Bailouts of Public and Private Programs.
The Need for National Mortgage Servicing Standards Anthony B. Sanders \| May 12, 2011 Anthony Sanders testified before the Senate Subcommittee on Housing, Transportation and Community Development…	Public Interest Comment on Investment Advice Jerry Ellig, Christina Forsberg \| May 06, 2010 The Labor Department’s Employee Benefits Security Administration seeks comment on a proposal that would allow fiduciaries that provide individual retirement savings plans (such as 401(k)s and IRAs)

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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 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.
Dodd-Frank: 'Financial Stability' On the Backs of Taxpayers Real Clear Markets By Hester Peirce \| Mar 13, 2013 March 11 marked the start of mandatory central clearing for certain kinds of over-the-counter derivatives called swaps. The central clearing requirement, a major component of Dodd-Frank, is purportedly one of the pillars upon which the future stability of our financial system rests. That pillar, however, is not as sturdy as it looks, particularly because regulators-blinded by central-clearing-love-are leaning on it. This pillar could come crashing down with destructive force. Thanks to Dodd-Frank, taxpayers will be there to pick up the pieces.	For Real Reform We Must Move Past 'Too Big to Jail' Hype US News and World Report Debate Club By Hester Peirce \| Mar 08, 2013 Moving past the "too big to jail" hype will enable us to productively focus on solving the "too big to fail" problem through clear, strong, procompetitive, market-discipline-focused rules.

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Charts

Experts

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.

J. W. Verret

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.

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Videos

The Search for Solutions: Looking Beyond Prescriptive Regulation

Henry Butler

J. W. Verret, Jerry Brito, Henry Butler | May 01, 2012

Anthony Sanders Testifies About the Euro Crisis

Anthony B. Sanders | December 15, 2011

Podcasts

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

Hester Peirce | April 09, 2013

Hester Peirce Discusses Dodd Frank at this Regulation University event.

Download the MP3

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Recent Events

The Search for Solutions: Looking Beyond Prescriptive Regulation

Please join the Mercatus Center's Regulation University for a seminar on the wide range of regulatory and non-regulatory options available to solve problems, and how Congress can evaluate those options. Our seminar panel will explain how to apply search-for-solution tools to examples drawn from health care, financial markets and technology policy areas.

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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.

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.	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.
The Failure of Risk-Based Capital Regulation Thomas L. Hogan, Neil Meredith, Xuhao Pan \| Jan 31, 2013 In this policy brief, the authors explain the fundamentals of risk-based capital (RBC) regulation and discuss some potential shortcomings of this system. We propose that the Fed end its use of RBC regulation and return to the use of simple capital ratios as measures of bank risk.	The Economics and Regulation of Network Branded Prepaid Cards Todd Zywicki \| Jan 15, 2013 This paper describes the current economic and regulatory landscape for prepaid cards. The market appears to be robustly competitive, as recent years have seen declining costs and increasing functionality as well as entry of major players such as American Express and several large banks. Nor is there any evidence that consumers systematically err in the cards that they choose. Absent a demonstrable competitive market failure or systematic consumer abuse, prescriptive regulation of the terms and substance of prepaid cards would likely have unintended consequences that would exceed the benefits to consumers. On the other hand, there are some regulations that might be enacted that could promote competition and consumer welfare in this rapidly evolving market.

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.	Measuring the Costs and Benefits of New Rules J. W. Verret \| Apr 17, 2012 After a careful review of the legislative requirements that the SEC consider investor protection, efficiency, competition and capital formation in adopting new rules, I would like to simply offer a list of six items that would demonstrate a sincere commitment by the SEC to fulfill its statutory mission. The first five I will list are in fact required by law if one carefully reads the legislative and judicial history of the SEC’s mandate to consider the economic impact of new rules.
Fixing the Watchdog: Legislative Proposals to Improve And Enhance the Securities and Exchange Commission J. W. Verret \| Sep 15, 2011 J.W. Verret testified before the House Committee on Financial Services about proposals to improve the Securities and Exchange Commission (SEC).	Who's Watching the Watchmen? Todd Zywicki \| May 24, 2011 Todd Zywicki testified before the House Subcommittee on TARP, Financial Services and Bailouts of Public and Private Programs.
The Need for National Mortgage Servicing Standards Anthony B. Sanders \| May 12, 2011 Anthony Sanders testified before the Senate Subcommittee on Housing, Transportation and Community Development…	Public Interest Comment on Investment Advice Jerry Ellig, Christina Forsberg \| May 06, 2010 The Labor Department’s Employee Benefits Security Administration seeks comment on a proposal that would allow fiduciaries that provide individual retirement savings plans (such as 401(k)s and IRAs)

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 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.
Dodd-Frank: 'Financial Stability' On the Backs of Taxpayers Real Clear Markets By Hester Peirce \| Mar 13, 2013 March 11 marked the start of mandatory central clearing for certain kinds of over-the-counter derivatives called swaps. The central clearing requirement, a major component of Dodd-Frank, is purportedly one of the pillars upon which the future stability of our financial system rests. That pillar, however, is not as sturdy as it looks, particularly because regulators-blinded by central-clearing-love-are leaning on it. This pillar could come crashing down with destructive force. Thanks to Dodd-Frank, taxpayers will be there to pick up the pieces.	For Real Reform We Must Move Past 'Too Big to Jail' Hype US News and World Report Debate Club By Hester Peirce \| Mar 08, 2013 Moving past the "too big to jail" hype will enable us to productively focus on solving the "too big to fail" problem through clear, strong, procompetitive, market-discipline-focused rules.

Financial Regulation