Financial Regulation

Financial Regulation

Research

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 | May 01, 2014
American International Group, Inc. (AIG), a large insurance company, received a massive bailout during the financial crisis in response to difficulties centered on the company’s multifaceted exposure to residential mortgage-backed securities. The company is back on its feet, albeit in more streamlined form and with a new overseer—the Federal Reserve. This paper focuses on a piece of the AIG story that is rarely told—the role of the company’s securities-lending program in imperiling the company and some of its insurance subsidiaries. The paper argues that regulatory responses to AIG have been inapt. AIG did not need another regulator, but better risk management. The markets would have conveyed that message clearly had regulators not intervened to ensure AIG’s survival. This paper adds the missing piece to the AIG story in an effort to challenge the notion that more regulatory oversight for companies like AIG will prevent future crises.
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.
Todd Zywicki, Robert L. Clarke | Apr 01, 2014
In response to the financial crisis that began in 2008, in 2010 President Obama signed into law the Wall Street Reform and Consumer Protection Act, commonly referred to as the “Dodd-Frank Act." A “centerpiece of the [new law] was the creation of the Consumer Financial Protection Bureau (“CFPB”),” which was established in response to the perception of widespread failures in the federal consumer protection regime with respect to financial products and the belief that these regulatory failures contributed to the financial crisis.
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.

Testimony & Comments

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.
Hester Peirce | Jul 10, 2014
As the Federal Reserve celebrates one hundred years, reform efforts are timely. Consideration of fundamental questions about the Federal Reserve’s role in the regulatory landscape and in the markets should accompany those efforts.
Hester Peirce | May 21, 2014
The flaws in the Bureau’s design impair its ability to operate effectively for consumers. Although more fundamental reforms are needed, incremental reforms will help the Bureau to set appropriate priorities and seek relevant comments before acting. Making the agency more accountable, more transparent, and more focused will also make it more effective at ensuring that the financial system is serving the needs of consumers.
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.

Speeches & Presentations

Expert Commentary

Mar 23, 2015

In a competitive market with free entry, bank size doesn't really matter, but regulations can distort firm size. At a recent Senate Banking Committee hearing on Federal Reserve reforms, Professor Allan Meltzer suggested that bank concentration is being driven by the new regulations that disproportionately affect small banks. New charts just released by the Mercatus Center show that the bank concentration trend did not begin with Dodd-Frank, but Dodd-Frank certainly won't halt that decline either.
Mar 11, 2015

If the United States wants to keep the capital markets in its economy working, its regulators should resist efforts to turn the current, multi-faceted financial system into a banking system. Instead they should work to foster dynamic capital markets that bring investors and companies in need of funds together. Only then will entrepreneurs all over the world dream of building their businesses here.
Feb 23, 2015

The Department of Labor appears to be moving forward with its fiduciary duty proposal. As DOL continues to contemplate change in this area, it should carefully consider the potential consequences of any changes, including the effects on investors of modest means. In crafting the rule and understanding the consequences, DOL should also work with the Securities and Exchange Commission. As has too often been the case in financial services regulation, good intentions could produce bad results for Americans trying to save for retirement.
Feb 23, 2015

Regulatory burdens allow big banks to flourish at the expense of their smaller competitors. Regulations cost more than they are worth, and getting rid of regulations will help financial institutions of all sizes serve customers effectively and affordably.
Feb 11, 2015

It is lamentation season for the few financial regulatory agencies that do not have carte-blanche authority to set their own budgets. The annual ritual should include a mandatory listen to the Rolling Stones: "You can't always get what you want, but if you try sometime, you just might find, you get what you need." Adding to the existing list of questionable interpretations of the song, financial regulators should hear a comforting message in those lyrics: you may not get the budget you ask for, but-with a little more effort on your part to spend carefully-you might just find that the budget you get is big enough to do your job.
Feb 10, 2015

Though President Obama's proposed bank tax might seem like a good way to reduce risk-taking among larger financial institutions, the tax would cause numerous unintended consequences. Rather, other policy alternatives can more effectively offer sustainable solutions in which banks make prudent decisions without having to raise fees or decrease services.

Charts

This week’s chart series shows that the five largest banks (by assets) in Q4 2014 held 46 percent of US banking assets and 40 percent of domestic deposits. That’s up from 28 percent and 20 percent, respectively, in early Q1 2000.

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 and director for the Financial Markets Working Group. Her primary research interests relate to the regulation of the financial markets.
J.W. Verret is a senior scholar at the Mercatus Center at George Mason University on leave to serve as chief economist at HFSC.
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

| March 23, 2015
Stephen Miller Discusses the Decline of Small Banks Post Dodd-Frank with Tim Farley of POTUS

Upcoming Events

Recent Events

The F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the Mercatus Center invites you to a panel discussion featuring Todd Zywicki and his new co-authored book Consumer Credit and the American Economy.

Books

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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