The Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) gave U.S. financial regulators a long list of regulations to write. Despite the sweeping nature of the Dodd-Frank changes, Dodd-Frank does not generally require regulators to conduct economic analysis. Further, most of the regulators charged with implementing Dodd-Frank are not subject to the standard regulatory analysis requirements for government rulemaking. Economic analysis can play a valuable role in assisting regulators in deciding whether and how to regulate, but very few financial regulators take advantage of this tool of their own volition.
This paper will describe just how little high-quality economic analysis the federal financial regulators charged with implementing Dodd-Frank and regulating the financial markets are doing. Although each regulator has a unique approach to economic analysis, all of their approaches fall short of the standard to which executive agencies are held. More fundamentally, the federal financial regulators are depriving themselves of analysis essential to the proper exercise of their rulemaking functions.
The paper begins with an introduction that provides a brief overview of the regulatory analysis obligations of executive agencies. It then proceeds to describe the obligations applicable generally to independent regulatory agencies, which include most of the federal financial regulators. The paper then discusses, in turn, each agency’s unique statutory obligations related to economic analysis and how each particular agency employs economic analysis. The paper also includes a discussion of economic analysis by the quasi-governmental regulators, which play an important role in federal financial regulation. They, too, fall short when it comes to regulatory analysis. The last section concludes with a call for greater emphasis on economic analysis in the promulgation of financial regulations.
A version of this article was published in George Mason Journal of Law, Economics & Policy, Volume 9, pp. 569-613 (2013).” Here is a link to the journal’s website, which has a pdf of the whole volume.