9 J.L. Econ. & Pol'y 569 (2012-2013)
Economic Analysis by Federal Financial Regulators

handle is hein.journals/jecoplcy9 and id is 601 raw text is: 2013]

569

ECONOMIC ANALYSIS BY FEDERAL FINANCIAL REGULATORS
Hester Peirce*
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 Dodd-Frank's changes, it does not generally require
regulators to conduct economic analysis.2 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 article 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.
* Senior Research Fellow, Mercatus Center at George Mason University. I gratefully
acknowledge the research assistance of Robert Greene and Derek Thieme, and the helpful comments of
Ted Bolema, Jerry Ellig, J.W. Verret, and Richard Williams. All errors are my own.
1 Dodd-Frank Wall Street Reform and Consumer Protection (Dodd-Frank) Act, 12 U.S.C. §
5301 (2010).
2 In this article, except where the context demands otherwise, the terms economic analysis and
regulatory analysis are used interchangeably. The terms cost-benefit analysis and benefit-cost analysis
are commonly used as substitutes for economic analysis and regulatory analysis but are generally
avoided here because a thorough regulatory analysis entails much more than simply weighing the costs
and benefits of a proposed regulation. Regulatory analysis entails looking at whether there is a market
failure that should be addressed through regulation, different alternatives for solving the problem, and
the costs and benefits of each alternative as compared to a common baseline.
See infra Table I for a list of the federal financial regulators discussed. Some agencies with
rulemaking authority under Dodd-Frank are not included because their primary mission is not federal
financial regulation. The Federal Insurance Office, a creation of Dodd-Frank, is also omitted; it does
not have independent authority to issue regulations, although any determinations to preempt state insur-
ance law are subject to the Administrative Procedure Act. The Financial Crimes Enforcement Network
(FinCEN), which administers the Bank Secrecy Act, is also omitted. Because FinCEN is a bureau of the
Department of Treasury, it is subject to the same economic analysis requirements as other executive
agencies. The quality of FinCEN's analysis is worthy of consideration, but it is beyond the scope of this
article because FinCEN's regulatory focus is anti-money laundering and terrorist financing. See gener-
ally Daniel J. Mitchell, Fighting Terror and Defending Freedom: The Role of Cost-Benefit Analysis, 25
PACE L. REV. 219 (2005) (examining anti-money laundering and terrorist financing laws from a cost-
benefit perspective).

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