Financial Regulation

Financial Regulation

Research

Bernard Sharfman | Aug 30, 2016
In a new paper for the Mercatus Center at George Mason University, corporate governance scholar Bernard S. Sharfman demonstrates that there is a strong theoretical argument against the SEC’s current rule about proxy access proposals. Additionally, the empirical support for universal proxy access is weak and conflicting, and the SEC must consider this evidence before requiring universal proxy access.
Hester Peirce | Jun 2016
The remaking of the United States derivatives markets is among the most celebrated pieces of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”). The Dodd-Frank reform, however, has unnecessarily destabilized the financial markets through mandatory reliance on central counterparties.
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…
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.
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.
Russell Sobel, Rachel Graefe-Anderson | Jul 09, 2014
The US federal government’s response to the financial crisis was an unprecedented increase in government subsidies, grants, and contracts given directly to specific private businesses. The terms “crony capitalism” and “cronyism” are now widely used to describe the modern relationship between government and private business.

Testimony & Comments

Jason Scott Johnston , Todd Zywicki, Michael Wilt | Aug 22, 2016
The proposed arbitration rules are not in the public interest and will not protect consumers as intended and required under the Dodd-Frank Act.
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.

Research Summaries & Toolkits

Speeches & Presentations

Expert Commentary

Sep 06, 2016

State regulators should not allow their good intentions to overshadow the best interests of the citizens of their states. The federal government — through either OCC regulation or statute — can provide a more consistent and equal regulatory playing field for fintech.
Aug 11, 2016

The speech suggests that [Theresa May's] new road map for British economic policy stands to destroy everything that the Iron Lady Margaret Thatcher, who governed from strong conservative policies, fought to create and defend.
Aug 07, 2016

If even casual individual bitcoin sellers like Espinoza must also register as MSBs, that will spell the end to legal local bitcoin-for-cash trades.
Aug 04, 2016

Overall, I'm struck by the sordid and petty nature of the crime as it is practiced -- and by how a lack of trust manages to place constraints on even such a relatively reckless group. Easy as it may be to call the perpetrators criminals, perhaps they are reflecting back some broader features of the innocent as well.
Jul 26, 2016

As a recent Federal Reserve Bank of Richmond study showed, the number of new banks has declined significantly since 2009. The decline coincided with the end of the crisis and the FDIC's prolonging of the de novo period, during which new banks must adhere to their capital plans, from three to seven years ... That the FDIC reversed this rule earlier this year could mean staff there acknowledge the rule's adverse effects.
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.

Charts

RegData, an online interactive tool, allows us to quantify the regulatory surge of Dodd-Frank in context. By analyzing the text of regulations and counting the words and phrases that signify a mandatory or prohibited activity—such as shall, must, may not, prohibited, and required—RegData gives a more meaningful measure of regulation than simply counting the number of new rules created or the number of pages added to the Federal Register.

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.
Arnold Kling is a Senior Affiliated Scholar and a member of the Financial Markets Working Group at the Mercatus Center at George Mason University.
Hester Peirce is a Senior Research Fellow at the Mercatus Center at George Mason University and director of the Financial Markets Working Group.
J.W. Verret is a senior scholar at the Mercatus Center at George Mason University.
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

Richard Williams | July 21, 2015
It’s been five years since the Dodd-Frank Act became law, with the goal of preventing the chaos of the 2008 economic crisis from happening again. But the question whether it’s worked is just as polarizing as the law itself was back then. The law affects Wall Street, banks, whistleblowers, consumer protection, and other sectors of the financial industry.

Recent Events

Please join the Mercatus Center’s Program on Monetary Policy Director Scott Sumner, and Visiting Scholar David Beckworth, for an in-depth discussion on the Federal Reserve. Just a week after Federal Reserve Chair Janet Yellen’s Congressional testimony, Mercatus scholars will analyze current Federal Reserve policy (like the December rate hike), and lead an informative discussion on the future of monetary policy.

Books

J. W. Verret | Apr 2016
Dodd–Frank’s Title IV, “The Private Fund Investment Advisers Registration Act,” achieved what the Securities and Exchange Commission (SEC) had tried in vain to do on its own—mandatory SEC registration of advisers to hedge funds.1 Congress, motivated by systemic risk and investor-protection concerns,2 directed the SEC to reinstitute mandatory registration for most advisers to hedge funds and other private funds. In addition, Title IV further limited the pool of potential investors in hedge funds and other private offerings and imposed substantial reporting requirements on private-fund advisers. Title IV will not achieve its objectives of enhancing financial stability and protecting investors—it will impede economic growth instead.

Media Clippings

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.
Hester Peirce | Feb 12, 2014
Hester Peirce quoted at Reuters.
Patrick McLaughlin | 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.
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