Reframing Financial Regulation

Enhancing Stability and Protecting Consumers

The financial system is a critical engine that keeps the economy vibrant. Serving consumers faced with unanticipated expenses, investors planning their futures, and small businesses looking to expand, it creates economic opportunities for all participants in society. In recent years, however, worries about too-big-to-fail and too-small-to-borrow have led many to question whether financial markets are working the way they should.

Designing a regulatory framework that ensures the resilience of the financial system and supports economic growth and individual prosperity has proven elusive to policymakers and interested observers. Every several years, policymakers scramble to re-regulate the financial system, particularly after a financial crisis has occurred. Too often, new “this time we really mean it” regulations are simply added onto existing ones, which makes for an unwieldy regulatory framework. Real reform requires reimagining the framework from the ground up, a task this book undertakes.

Reframing Financial Regulation: Enhancing Stability and Protecting Consumers, edited by Hester Peirce and Benjamin Klutsey, brings together a diverse set of authors to provide alternative ways to regulate different aspects of the financial system. The chapters embody approaches that rely less on centralized, top-down regulations and more on market discipline and oversight. The book, which reflects a wide variety of viewpoints and approaches, seeks to initiate a lively conversation about how a thoughtfully regulated, market-based financial system can facilitate risk sharing, efficiently provide access to capital, and enable households to save for the future.

About the Editors

Hester Peirce is a senior research fellow and the director of the Financial Markets Working Group at the Mercatus Center at George Mason University. Before joining the Mercatus Center, she served as a senior counsel to the Republican staff on the Senate Committee on Banking, Housing, and Urban Affairs. Before that, she served as counsel to Commissioner Paul S. Atkins at the US Securities and Exchange Commission and as a staff attorney in the Division of Investment Management at the US Securities and Exchange Commission. She earned her BA in economics from Case Western Reserve University and her JD from Yale Law School.

Benjamin Klutsey is the program manager for the Financial Markets Working Group and the Program on Monetary Policy at the Mercatus Center at George Mason University. Klutsey was previously with the Institute of International Finance, where he served as policy assistant analyzing international financial regulations related to liquidity risk management and risk governance. He received his MA in international commerce and policy from George Mason University and his BA in government and philosophy from Lawrence University.

Table of Contents

Click each chapter title to download the PDF.

Introduction: Market-Based Financial Regulation
Hester Peirce and Benjamin Klutsey

Part 1: Regulating Loss Absorption

Chapter 1: Risk-Based Capital Rules
Arnold Kling | Mercatus Center at George Mason University

Chapter 2: On Simpler, Higher Capital Requirements
Stephen Matteo Miller | Mercatus Center at George Mason University

Chapter 3: Alternatives to the Federal Deposit Insurance Corporation
Thomas L. Hogan | Johnson Center for Political Economy, Troy University
Kristine Johnson | Mercatus Center MA Fellow at George Mason University (Alumna)

Part 2: Addressing Failure

Chapter 4: Title II of Dodd-Frank
Peter J. Wallison | American Enterprise Institute

Chapter 5: The Rise of Bail-Ins and the Quest for Credible Laissez-Faire Banking
Garett Jones | George Mason University

Part 3: Regulating Securities and Derivatives Markets

Chapter 6: US Broker-Dealer Regulation
Hon. Daniel M. Gallagher | Patomak Global Partners, LLC, and Former Commissioner, US Securities and Exchange Commission

Chapter 7: Reconsidering the Dodd-Frank Swaps Trading Regulatory Framework
Hon. J. Christopher Giancarlo | Commissioner, US Commodity Futures Trading Commission

Chapter 8: Rethinking the Swaps Clearing Mandate
Hester Peirce and Vera Soliman | Mercatus Center at George Mason University

Chapter 9: The Past and Future of Exchanges as Regulators
Edward Stringham | Trinity College

Chapter 10: Using the Market to Manage Proprietary Algorithmic Trading
Holly A. Bell | University of Alaska Anchorage

Chapter 11: Offering and Disclosure Reform
David R. Burton | The Heritage Foundation

Part 4: Regulating Consumer Finance

Chapter 12: Market-Reinforcing versus Market-Replacing Consumer Finance Regulation 
Todd J. Zywicki | Antonin Scalia Law School, George Mason University

Chapter 13: Examining Arguments Made by Interest Rate Cap Advocates
Thomas W. Miller Jr. | Mississippi State University
Harold A. Black | University of Tennessee, Knoxville (Emeritus)

Part 5: Facilitating Innovation

Chapter 14: Regulating Bitcoin—On What Grounds?
William J. Luther | Kenyon College

Chapter 15: Financial Technology 
Houman B. Shadab | Center for Business and Financial Law, New York Law School

Chapter 16: Ending the Specter of a Federal Corporate Law 
J. W. Verret | Antonin Scalia Law School, George Mason University

Part 6: Improving the Regulatory Process

Chapter 17: Is Regulatory Impact Analysis of Financial Regulations Possible?
Jerry Ellig and Vera Soliman | Mercatus Center at George Mason University