Holding financial regulators accountable: A case for economic analysis

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Article Highlights

  • Dodd-Frank expanded powers of regulatory agencies, but not oversight.

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  • Required economic analysis would improve rulemaking by financial regulators.

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Key points:

  • The Dodd-Frank Act expanded the powers of federal financial regulatory agencies, adding hundreds of new rules and creating several federal agencies. There is growing evidence that many of these new rules are limiting access to credit, increasing the cost of financial products and services, and holding back economic growth.
  • Because federal financial regulators are structured as independent regulatory agencies, they generally are not required to conduct economic analysis of their rules, consider reasonable alternatives, or disclose details to the public.
  • Statutory economic analysis of new rulemakings would improve transparency and increase the effectiveness of rule writing at the financial regulatory agencies. The agencies should also conduct retrospective analysis to determine effectiveness after rules are enacted.


The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 greatly expanded the regulatory mandate of federal financial regulatory agencies.[1] New rules and increased regulatory intervention will affect consumers, investors, competitive prospects for financial institutions, and the economy. However, regulators generally are not required to consider or disclose the economic impact of the rules they promulgate.

We propose a statutory requirement for economic analysis at federal financial regulators, modeled after the analysis required of executive branch federal agencies under executive orders.[2] We use the term "economic analysis" to mean something akin to regulatory impact analysis, through which agencies identify the problem they are trying to solve, identify reasonable possible solutions, and assess the costs and benefits-quantified to the degree possible-of those solutions against a baseline.[3]

A statutory requirement would ensure that the public would be able to comment on the analysis and that it would be subject to judicial review. We propose that the statute include a congressional notice provision in the event that the costs of a particular rule outweigh the benefits. We also propose a mechanism for peer review of agencies' economic analysis. Finally, we propose that agencies retrospectively analyze new rules to identify unintended consequences.

Statutorily mandated economic analysis would bring much-needed transparency and accountability to the rule-writing process. It also would help the financial regulators craft more effective rules to solve the most pressing problems in financial services.


Expansion of Regulatory Authority

The aftermath of the 2007-09 financial crisis saw a dramatic uptick in regulation. The Dodd-Frank Act, signed into law on July 21, 2010, charged federal financial regulators with writing and enforcing 398 new rules.[4] Since Dodd-Frank's passage, regulators have written roughly 13,000 pages of new regulations requiring more than 60 million hours of paperwork for compliance.[5] Approximately one-quarter of the required rules still have not been proposed.[6]

Dodd-Frank increased regulatory authority in two ways. First, it gave existing regulators new powers. For example, Title I of Dodd-Frank provided the Federal Reserve with the authority to supervise nonbank financial companies, such as insurance companies and asset managers, designated as systemically important financial institutions (SIFIs) by the Financial Stability Oversight Council.[7] In 2013, Prudential, AIG, and GE Capital were designated nonbank SIFIs and put under the Federal Reserve's jurisdiction.[8] More designations will likely follow.

Title II of Dodd-Frank provided for "resolution authority"-the authority to wind down compromised financial services firms if their collapse would pose a systemic threat to the economy-and charged the Federal Deposit Insurance Corporation (FDIC) with developing the rules pursuant to which such resolutions would occur.[9] Title VI expanded the Federal Reserve's regulatory authority.[10] Title VII gave the Commodity Futures Trading Commission (CFTC) and Securities and Exchange Commission (SEC) broad new authority to regulate over-the-counter derivatives.[11] Titles IV, IX, and XV gave numerous new authorities to the SEC.[12]

Second, Dodd-Frank created new financial regulators, some of which have expansive mandates. For example, Title I of Dodd-Frank created the Financial Stability Oversight Council (FSOC) and gave it broad authority to monitor for systemic risk, designate banks and nonbanks as SIFIs, and set standards for financial activities that could pose a systemic threat. Title I also established the Office of Financial Research within the Department of the Treasury to collect data related to systemic risk. Title X created the Bureau of Consumer Financial Protection (popularly known as the Consumer Financial Protection Bureau, or CFPB) and gave it broad supervisory, enforcement, and regulatory authority over providers of consumer financial products and services.[13]


The Need for Accountability

New rules emanating from Dodd-Frank and related reforms will affect nearly every part of the financial services industry and thus consumers, investors, and the economy. Indeed, growing evidence indicates that new rules and increased regulatory intervention from Dodd-Frank are limiting access to credit, increasing the cost of financial products and services, and holding back economic growth. A recent study estimated that the present discounted loss to consumers from the Durbin Amendment of Dodd-Frank, which capped the price of debit interchange fees, is between $22 billion and $25 billion in higher fees and lost services.[14] Another study found that new rules from Dodd-Frank are forcing community banks to consolidate and encouraging standardization of financial products, leaving "millions of vulnerable borrowers without meaningful access to credit."[15] Other independent reports from the OECD, Basel Committee on Banking Supervision, and Institute of International Finance suggest that new rules may hold back economic growth.[16]

Despite the many new rules and their potential adverse effects, federal financial regulators-with few exceptions-are not required to conduct economic analysis of the rules they promulgate, consider reasonable alternatives, or disclose such analyses. By contrast, executive orders require that most other federal agencies conduct economic analysis as part of their rulemaking processes. This requirement dates back more than 30 years to Executive Order 12291, issued by President Ronald Reagan in 1981.[17] The Office of Information and Regulatory Affairs (OIRA), which is part of the Office of Management and Budget (OMB), reviews these analyses at various stages during the rule-writing process.[18]

Most federal financial regulators are structured as independent regulatory agencies and thus excluded from the executive orders mandating economic analysis. In a 2011 executive order, President Barack Obama took a step toward integrating independent regulatory agencies into the existing economic analysis framework by urging them to conduct regulatory analysis:

Wise regulatory decisions depend on public participation and on careful analysis of the likely consequences of regulation. Such decisions are informed and improved by allowing interested members of the public to have a meaningful opportunity to participate in rulemaking. To the extent permitted by law, such decisions should be made only after consideration of their costs and benefits (both quantitative and qualitative).[19]

The federal financial regulators generally have not followed the president's directive. Instead, they comply, to varying degrees, with a patchwork of statutes that require them to assess various costs of new rules, such as their paperwork burden or their compliance burden on small business.[20] In a 2013 study, Peirce finds these requirements are far from comprehensive and do not include a clear requirement to conduct economic analysis.[21]

In addition, certain financial regulators, such as the SEC and CFTC, are required by their organic statutes to conduct economic analysis. Historically, they have not taken these obligations particularly seriously. For example, the SEC must consider efficiency, competition, and capital formation whenever it is engaged in rulemaking that involves a public interest consideration.[22] In addition, it must consider competitive impacts of its regulations.[23]

However, the quality of the SEC's analysis has been criticized from within and outside the SEC.[24] A Mercatus Center study found that the SEC's economic analyses compared unfavorably with executive branch agencies' analysis.[25] Recently implemented efforts by the SEC staff may serve to improve that agency's economic analysis, but a stronger statutory requirement would provide a more durable basis for thorough economic analysis.[26]

The CFPB is required by statute to conduct some cost-benefit analysis on its rulemakings.[27] However, the CFPB's assistant director for research is embedded in the chain of command responsible for rulemaking, potentially undermining the independence of the research estimates.[28] Finally, some agencies have internal economic analysis requirements. Internal Federal Reserve guidelines require it to prepare and publicly disclose an economic analysis, but the Federal Reserve routinely ignores those guidelines.[29]

As a result of the agencies' lackluster commitment to economic analysis, major rules, such as the Volcker Rule, are being adopted without any formal consideration of economic impact.[30] Moreover, financial regulators show little consistency in how they approach economic analysis. In a 2011 study, the Government Accountability Office (GAO) proposed that the implementation of Dodd-Frank would benefit from uniform economic analysis by federal financial regulators.[31]


Addressing Critics of Economic Analysis

Critics of requiring economic analysis by the federal financial regulators often focus on the difficulties of conducting cost-benefit analysis. They argue that (1) financial regulation is uniquely difficult to analyze using cost-benefit tools,[32] (2) economic analysis would slow down needed regulation,[33] and (3) because the difficult-to-quantify benefits of preventing another financial crisis certainly outweigh the costs of any new rules, economic analysis is inapt.[34] These criticisms have rhetorical appeal, but are substantively flawed.

With respect to the first critique, economic analysis of financial regulations has precedent both domestically and abroad. In the United Kingdom, the Financial Services Act 2012, which created the Financial Conduct Authority and Prudential Regulatory Authority, requires both of these regulators to perform a cost-benefit analysis as part of their rulemaking process.[35] One of the principles governing the new regulators is that "a burden or restriction which is imposed on a person, or on the carrying on of an activity, should be proportionate to the benefits, considered in general terms, which are expected to result from the imposition of that burden or restriction."[36] This requirement mirrors a requirement for the now-defunct Financial Stability Authority.[37]

Moreover, as mentioned earlier, US federal agencies (aside from the financial regulators) are required to conduct economic analysis on all rules.[38] There is growing pressure for financial regulators to do the same. In March 2012, after a series of adverse court decisions, the SEC staff released updated guidance laying out a plan to conduct economic analysis similar to that required by executive orders and OIRA's Circular A-4. [39] The plan also included greater integration of economists in the agency's decision-making process.[40] The implication of the changes underway at the SEC is that economic analysis of financial regulation is possible. Congress took a similar view when drafting the SEC's organic statutes and the Commodity Exchange Act, which requires the CFTC to conduct a cost-benefit analysis that includes "considerations of the efficiency, competitiveness, and financial integrity of futures markets."[41]

With respect to the critique that economic analysis would slow needed regulation, getting the rules done right is just as important as getting them done in a timely fashion. Indeed, regulators themselves seem to treat statutory rulemaking deadlines as targets rather than hard deadlines. To date, they have missed nearly half (45.7 percent) of all Dodd-Frank deadlines.[42]

To be sure, economic analysis may slow down the rule-writing process further. It likely will entail additional rulemaking resources, including significant time from PhD-level economists. However, the marginal delay in writing a rule likely is a fraction of the time the rule will be in place. The executive branch has deemed the trade-off worthwhile for environmental and health care rulemaking-areas in which economic analysis involves complexities similar to those that critics cite with respect to economic analysis of financial regulation.[43] It is difficult to see why financial regulation is any less worthy of careful consideration.

With respect to the critique on the costs of the crisis, the financial crisis was extremely costly. However, this should not give regulators carte blanche to write new rules without considering whether they could achieve their intended goals with more effective alternatives. First, many of the rules mandated by Dodd-Frank-such as the Durbin Amendment, proxy access, and conflict mineral provisions-have nothing to do with preventing another financial crisis. Second, Dodd-Frank mandates many different rules working toward the same end. Economic analysis would help identify and streamline overlapping efforts and also help flag (before it is too late) unintended consequences of regulation that could destabilize the financial system. Third, regulators charged with the heavy responsibility of preventing another financial crisis would benefit from employing rigorous analysis. The GAO and OMB "have identified benefit-cost analysis as a useful tool that can inform decision making" and that can "help identify trade-offs among alternatives."[44] Successful analytic tools should be applied to our nation's biggest challenges, including regulating our financial system.


A Proposal for Economic Analysis

We recommend that Congress design a mandate to require that all governmental and quasi-governmental federal financial regulators conduct economic analysis in connection with their rulemakings.[45] This analysis "should be credible, objective, realistic, and scientifically balanced."[46]

The existing loosely worded analysis requirements embedded in the organic CFTC, CFPB, and SEC statutes have given rise in practice to varying interpretations, inconsistent application, and little rigorous analysis, and courts have not interpreted these provisions consistently.[47] A stronger statutory requirement would include specific elements to provide agencies with a clear road map of the type of analysis that they are required to perform. Such specificity also would facilitate public comment, peer review, congressional oversight, and judicial review of the agencies' analyses.

Applicability of a Statutory Economic Analysis Mandate. In connection with every substantive rulemaking, we propose agencies should conduct and publicly document economic analysis.[48] This requirement should not be limited to economically significant regulations. If an agency deems a rule is too insignificant for economic analysis, then the notice of proposed rulemaking should explain both why the rule is not significant enough to merit an accompanying economic analysis and any assumptions underlying this assessment of the rule. The public could challenge this assessment during the comment period.

Rulemakings by the FSOC should be subject to economic analysis requirements, just as other financial regulators' rules should be. Because one of the FSOC's primary roles is designating systemically important financial institutions for regulation by the Federal Reserve, each designation should also be conducted with the economic analysis.[49] Among the relevant considerations in such an analysis would be the effect that designating a company would have on expectations of future government bailouts, the competitive landscape, and instabilities resulting from a new regulatory structure. To conduct such an analysis, the FSOC would need an indication from the Federal Reserve about the types of regulatory requirements it intends to impose on the designated entity.

To the extent that agencies believe they lack adequate information to carry out an analysis, they should consider issuing a concept release (an advance notice of proposed rulemaking) to solicit the necessary information.[50] In cases in which a statute is automatically effective but allows the agency some implementation discretion, the agency should not restrict its analysis to the discretionary elements of its rulemaking. It should also analyze the effects of the automatically effective statutory mandate.[51]

Elements of a Statutory Economic Analysis Mandate. We recommend statutory elements that track closely the directives and guidance contained in Executive Orders 12866 and 13563 and OMB Circular A-4.[52] An effective statutory economic analysis mandate would include the following steps:

Identify the problem the agency is setting out to solve and its source. If a regulator does not know what it is trying to achieve with its regulation, it is difficult to design an appropriate solution and measure success. Thus, agencies should identify the problem, its magnitude, and its causes. The problem might be a market failure or the need to address an issue such as lending discrimination. Agencies should cite a statutory basis for their proposed regulations, but simply citing a statutory mandate is not a substitute for identifying the problem that a rule is designed to solve.

Identify alternative solutions. After delineating the problem, an agency should identify potential solutions and consider how those solutions will address the problem. If prior regulations are the source of the problem, the preferred solution might be eliminating or modifying the offending regulations.[53] The agency need not identify every possible solution but should identify reasonable approaches to addressing the identified problem. The agency should think about solutions that do not involve regulation, such as reliance on voluntary industry efforts or reliance on state regulation.

Identify the baseline against which costs and benefits can be measured. The baseline is the agency's "best assessment of the way the world would look absent the proposed action."[54] The agency may find it necessary to use multiple baselines but should use the selected baseline or baselines consistently throughout its analysis.[55]

Identify the costs and benefits of each possible solution. The agency should identify the direct and indirect costs and benefits of each alternative. This analysis should cover each piece of a proposed regulatory solution, rather than only select provisions.[56] The agency should monetize these costs and benefits to the extent that it can and should quantify costs and benefits that cannot be monetized. If an agency can neither monetize nor quantify certain categories of costs and benefits, it should explain why it cannot do so, solicit the information necessary to do so, and qualitatively describe the costs and benefits.

The analysis should include consideration of the effects of the rule on the agency's administrative costs.[57] Agencies should also consider the costs to and benefits for other federal agencies and state, local, and tribal governments.[58] For transparency's sake, the agency should set forth the costs and benefits of the different potential solutions in a chart. Agencies should disclose clearly the assumptions they made, the data on which they relied, the methods they used, and the uncertainties they identified in their analysis.[59]

Identify the competitive and distributional effects of each possible solution, including the effects on underserved populations and small businesses. In addition to identifying the costs and benefits, agencies should consider how each potential solution will affect different parties and the competitive landscape. Agencies should consider, for example, whether underserved consumers and investors or small financial institutions would disproportionately bear a proposed regulation's costs. Agencies should also consider the degree to which a particular solution will act as a barrier of entry for would-be providers of financial products and services.

Identify the degree to which each possible solution conflicts with or duplicates other financial regulations. Given the number of financial regulators, it is important for agencies to consider how proposed regulatory solutions will interact with existing or proposed financial regulations.[60]

Describe reasons for choosing a solution other than the one that maximizes net benefits. If an agency proposes or adopts a solution other than the one that maximizes net benefits, it should provide a detailed explanation of its reasons for doing so.[61]

Transparency. The quality of economic analysis will turn on the choices financial regulators make in conducting that analysis. Transparency about these choices is, therefore, of great importance for assessing the quality of economic analysis. A statutory economic analysis mandate should include a requirement that agencies publish the mandated analysis-including assumptions, data, degree of uncertainty, and methods-in the notice of proposed rulemaking or on their websites. The public should be able to comment on these analyses, and the agency should prepare a revised analysis, reflecting the public commentary and any other new information, in connection with the rule adoption.

Review of Economic Analysis. Public comment is a useful mechanism for ensuring that the federal financial regulators conduct high-quality economic analysis. Additional oversight by Congress, courts, and external economists is also important. We recommend that Congress consider making all of these review mechanisms available.

Members of Congress and congressional committees can exercise oversight of the federal financial regulation through hearings, letters, and other inquiries. Federal financial regulators should notify their relevant oversight committees upon adoption of a regulation for which the net monetized costs outweigh the net monetized benefits. Public notification of Congress in these situations would encourage the agencies to make a greater effort to find solutions that have net benefits, or if they cannot, to provide an impetus for committee action. A more forceful option would be to stop the rule from taking effect unless Congress approves it through a joint resolution and the president does not veto that resolution.

Federal financial regulators' economic analysis should also be reviewable in court. The purpose of judicial review would not be for the court to re-create the challenged economic analysis, but rather to ensure that an agency has complied with the statutorily mandated procedural elements. The statutory prescription of specific economic analysis components means that the court's review of agency economic analysis would be easier than it is currently. Under the status quo, courts assess agencies' economic analysis against statutory mandates that require economic analysis without much specificity as to the content of that analysis.[62] An agency's failure to conduct the steps required under the statute would trigger the Administrative Procedure Act's directive that a reviewing court "hold unlawful and set aside agency action, findings, and conclusions found to be arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law."[63]

Finally, the chief economists of the governmental federal financial regulators should establish a group for the purposes of peer review and sharing best practices.[64] This group could meet regularly (for example, quarterly or semiannually) to discuss best practices for economic analysis by financial regulators. The group should also be charged with conducting peer reviews of the economic analysis practices of the federal financial regulators.[65] These reviews-which could occur every three years-would be of a subset of the agency's economic analyses. In addition, the reviews would include general consideration of how well the federal financial regulator under review adheres to the mandated elements of economic analysis and how much use the agency makes of the economic analysis. If necessary, the peer review would include recommendations for improvement.

Retrospective Review. Review of regulations at or near the time a rule is adopted is important, but retrospective review of rules is also valuable. After a rule for which economic analysis was conducted has been in place for five years, regulators should review the rule to assess whether it is achieving its objectives and at what cost.[66] For such retrospective review to be effective in assessing whether the rule's initial objectives were achieved, financial regulators should be required when they adopt a regulation to identify the metrics by which the retrospective review will measure success. These metrics should correspond with the benefits identified in the economic analysis. One of the areas they measure should be how net monetized benefits compare with net monetized costs.

At the start of each fiscal year, agencies should provide a list of the rules they plan to review. This would help to ensure that reviews actually take place. Regulators also should make these retrospective analyses-along with the data relied upon, assumptions made, and methods of analysis employed-available on their websites. To the extent, the agency finds that the net costs of the rule exceed the net benefits, it should notify its relevant congressional oversight committees.[67]



Congress adopted Dodd-Frank on the expectation that the law would make sweeping changes to the way in which financial markets operate. But financial markets are being transformed without a rigorous process for analyzing the anticipated consequences-positive and negative-of new regulations on consumers, investors, financial institutions, regulators, and the economy.

We propose that such a process be required for future financial rulemaking. The recommended elements of the process, which are modeled on the elements in regulatory impact analyses conducted by executive branch agencies, would insert discipline into the rulemaking process. Judicial, congressional, and peer review are necessary components of an effective economic analysis requirement. In addition, retrospective analysis of rules that have already been through economic analysis will help to improve the quality of agencies' analyses and rules. These new processes would assist regulators in their decision making, flag problematic regulations before they could impose undue harm, and offer needed transparency and accountability in the formulation of financial regulations.


Abby McCloskey ([email protected]) is the program director of economic policy at AEI, and Hester Peirce ([email protected]) is a senior research fellow at the Mercatus Center at George Mason University.



1. For purposes of this paper, the federal financial regulators affected by Dodd-Frank include the Board of Governors of the Federal Reserve System (Federal Reserve), Federal Deposit Insurance Corporation (FDIC), Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), Federal Housing Finance Agency (FHFA), Federal Insurance Office (FIO), National Credit Union Administration (NCUA), Office of the Comptroller of the Currency (OCC), Bureau of Consumer Financial Protection (CFPB), Financial Stability Oversight Council (FSOC), and Office of Financial Research (OFR), as well as the quasi-governmental regulators: the Public Company Accounting Oversight Board (PCAOB), Municipal Securities Rulemaking Board (MSRB), and National Futures Association (NFA).

2. See "Regulatory Planning and Review," Exec. Order No. 12866, 58 Fed. Reg. 51735 (September 30, 1993); and "Improving Regulation and Regulatory Review," Exec. Order No. 13563, 76 Fed. Reg. 3821 (January 18, 2011). See also Office of Management and Budget, "Circular A-4" (September 17, 2003), www.whitehouse.gov/omb/circulars_a004_a-4.

3. "Economic analysis" is, therefore, a more comprehensive term than "cost-benefit analysis." Other commentators often do not make a distinction between the terms, but we believe that it is important for purposes of this discussion to do so.

4. This count is from Davis Polk, "Dodd-Frank Progress Report" (April 2014), 2,www.davispolk.com/sites/default/files/Apr2014.Dodd_.Frank_.Progress.Report.PDF.

5. This first estimate is from Davis Polk, "Dodd-Frank Progress Report: Three-Year Anniversary Report" (July 15, 2013), www.davispolk.com/files/uploads/FIG/071813_Dodd.Frank.Progress.Report.pdf. The second estimate is provided by the American Action Forum. See Sam Batkins, "Week in Regulation," American Action Forum, October 11, 2013, http://americanactionforum.org/week-in-regulation/shutdown-virtually-wiped-out-new-regulations.

6. Davis Polk, "Dodd-Frank Progress Report" (May 1, 2014), www.davispolk.com/sites/default/files/Progress.Report.May2014.pdf.

7. For an explanation of Title I, see Legal Information Institute (Cornell University), "Dodd-Frank: Title I-Financial Stability," www.law.cornell.edu/wex/dodd-frank_title_I; and Hester Peirce and James Broughel, "Dodd-Frank: What It Does and Why It's Flawed" (Mercatus Center, George Mason University, 2012), 25-32, http://mercatus.org/publication/dodd-frank-what-it-does-and-why-its-flawed.

8. See Department of the Treasury, "Basis for the Financial Stability Oversight Council's Final Determination Regarding Prudential Financial, Inc." (September 19, 2013), www.treasury.gov/initiatives/fsoc/designations/Documents/Prudential%20Financial%20Inc.pdf; Department of the Treasury, "Basis for the Financial Stability Oversight Council's Final Determination Regarding American International Group, Inc." (July 8, 2013), www.treasury.gov/initiatives/fsoc/designations/Documents/Basis%20of%20Final%20Determination%20Regarding%20American
; and Department of the Treasury, "Basis for the Financial Stability Oversight Council's Final Determination Regarding General Electric Capital Corporation, Inc." (July 8, 2013), www.treasury.gov/initiatives/fsoc/designations/Documents/Basis%20of%20Final%20Determination%20Regarding%20

9. For an explanation of Title II, see Legal Information Institute (Cornell University), "Dodd-Frank: Title II-Orderly Liquidation Authority," www.law.cornell.edu/wex/dodd-frank_title_II; and Peirce and Broughel, "Dodd-Frank: What It Does," 34-43.

10. For an explanation of Title VI, see Legal Information Institute (Cornell University), "Dodd-Frank: Title VI: Improvements to Regulation of Bank and Savings Association Holding Companies and Depository Institutions," www.law.cornell.edu/wex/dodd-frank_title_VI; and Peirce and Broughel, "Dodd-Frank: What It Does," 66-75.

11. For an explanation of Title VII, see Legal Information Institute (Cornell University), "Dodd-Frank: Title VII: Wall Street Transparency and Accountability," www.law.cornell.edu/wex/dodd-frank_title_VII; and Peirce and Broughel, "Dodd-Frank: What It Does," 76-88.

12. For an explanation of Titles IV, IX, and XIV, see Legal Information Institute (Cornell University), www.law.cornell.edu/wex/dodd-frank; and Peirce and Broughel, "Dodd-Frank: What It Does," 52-58, 98-109, and 152-61.

13. For an explanation of Title X, see Legal Information Institute (Cornell University), "Dodd Frank: Title X-Bureau of Consumer Financial Protection," www.law.cornell.edu/wex/dodd-frank_title_X; and Peirce and Broughel, "Dodd-Frank: What It Does," 110-18.

14. David S. Evans, Howard H. Chang, and Steven Joyce, "The Impact of the U.S. Debit Card Interchange Fee Caps on Consumer Welfare: An Event Study Analysis" (University of Chicago Coase-Sandor Institute for Law and Economics Research Paper No. 658, October 23, 2013).

15. Tanya D. Marsh and Joseph W. Norman, "The Impact of Dodd-Frank on Community Banks" (AEI, May 7, 2013), www.aei.org/papers/economics/financial-services/banking/the-impact-of-dodd-frank-on-community-banks/.

16. Patrick Slovik and Boris Cournède, "Macroeconomic Impact of Basel III" (Organization for Economic Cooperation and Development, February 14, 2011), www.oecd-ilibrary.org/economics/macroeconomic-impact-of-basel-iii_5kghwnhkkjs8-en; Basel Committee on Banking Supervision, "An Assessment of the Long-Term Economic Impact of Stronger Capital and Liquidity Requirements" (August 2010), www.bis.org/publ/bcbs173.pdf; Institute of International Finance, "The Cumulative Impact on the Global Economy of Changes in the Financial Regulatory Framework" (September 2011), www.iif.com/download.php?id=oXT67gHVBJk; and Government Accountability Office, "Dodd-Frank Act Regulations: Implementation Could Benefit from Additional Analyses and Coordination" (November 10, 2011), www.gao.gov/new.items/d12151.pdf.

17. Exec. Order 12291 (February 17, 1981).

18. For more information, see Government Accountability Office, "Rulemaking: OMB's Role in Reviews of Agencies' Draft Rules and the Transparency of Those Reviews" (September 22, 2003), www.gao.gov/products/GAO-03-929.

19. "Regulation and Independent Regulatory Agencies," Exec. Order 13579, 76 Fed. Reg. 41586 (July 11, 2011).

20. Government Accountability Office, "Dodd-Frank Act Regulations."

21. Hester Peirce, "Economic Analysis by Federal Financial Regulators," George Mason Journal of Law, Economics, and Policy 9 (2013): 576.

22. Securities Act of 1933 § 2(b), 15 U.S.C. § 77b (2006); Securities Exchange Act of 1934 § 3(f), 15 U.S.C. § 78c(f) (2006); Investment Company Act of 1940 § 2(c), 15 U.S.C. § 80a-2(c) (2006).

23. Securities Exchange Act § 23(a)(2), 15 U.S.C. § 78w(a)(2) (2006).

24. Peirce, "Economic Analysis by Federal Financial Regulators," 582.

25. Jerry Ellig and Hester Peirce, "SEC Regulatory Analysis: ‘A Long Way to Go and a Short Time to Get There'" (Mercatus Center Working Paper March 2014), http://mercatus.org/sites/default/files/Ellig_SECRegulatoryAnalysis_v1.pdf.

26. See, for example, SEC Division of Risk, Strategy, and Financial Innovation and Office of General Counsel, memorandum to the Rulemaking Divisions and Offices (March 16, 2012), www.sec.gov/divisions/riskfin/rsfi_guidance_econ_analy_secrulemaking.pdf.

27. Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law 111-203, 111th Cong., 2d sess. (July 21, 2010), § 1022(b)(2)(A).

28. Consumer Financial Protection Bureau, "About Us," www.consumerfinance.gov/the-bureau/.

29. Peirce, "Economic Analysis by Federal Financial Regulators," 599.

30. For evidence about how this attitude has manifested itself in connection with Dodd-Frank, see Committee on Capital Markets Regulation letter toTimothy Johnson, Chairman, Senate Committee on Banking, Housing, and Urban Affairs et al., March 7, 2012, http://capmktsreg.org/pdfs/2012.03.07_CBA_letter.pdf.

31. Government Accountability Office, "Dodd-Frank Act Regulations."

32. The Federal Reserve wrote a letter in response to the GAO's recommendation for economic analysis, saying that "conducting benefit-cost analysis on financial regulations is inherently difficult." Letter from Scott G. Alvarez and James M. Lyon to A. Nicole Clowers, October 24, 2011, available as Appendix VIII to Government Accountability Office, "Dodd-Frank Act Regulations." See also, for example, John C. Coates IV, "Cost-Benefit Analysis of Financial Regulation: Case Studies and Implications" (European Corporate Governance Institute Legal Working Paper No. 234, January 2014). Coates does not dismiss cost-benefit analysis for financial regulations altogether but suggests that agencies should have full discretion to decide whether and how to use it.

33. Steven Sloan, "Cost-Benefit Analysis Puts the Brakes on Dodd-Frank," Bloomberg Businessweek, May 7, 2012, www.businessweek.com/news/2012-05-07/cost-benefit-analysis-puts-the-brakes-on-dodd-frank#p2. See also Patrick Caldwell, "Killing Dodd-Frank Softly," American Prospect, September 17, 2012, http://prospect.org/article/killing-dodd-frank-softly-0.

34. See Dennis Kelleher, Stephen Hall, and Katelynn Bradley, "Setting the Record Straight on Cost-Benefit Analysis and Financial Reform at the SEC" (Washington, DC: Better Markets Inc., July 30, 2012), www.bettermarkets.com/sites/default/files/Setting%20The%20Record%20Straight.pdf: "If the cohesive framework envisioned in the Dodd-Frank Act is unraveled rule by rule on cost-benefit grounds, then the public, the markets, and the economy as a whole will once again be vulnerable to another financial downfall."

35. See, for example, Financial Services Act 2012 (United Kingdom), Part 9A, Chapter 1, § 138I(2)(a) and 138J(2)(a), www.legislation.gov.uk/ukpga/2012/21/enacted.

36. Ibid., Chapter 3B(1)(b).

37. For a Financial Services Authority discussion of cost-benefit analysis in financial regulation, see Isaac Alfon and Peter Andrews, "Cost-Benefit Analysis in Financial Regulation: How to Do It and How It Adds Value" (Financial Services Authority Occasional Paper Series No. 3, September 1999).

38. Under Executive Order 12866, OIRA only reviews the analyses for only "significant" regulations-including those with an annual effect on the economy of $100 million or more.

39. SEC Division of Risk, Strategy, and Financial Innovation and Office of General Counsel, memorandum.

40. See Mary L. Schapiro, "Testimony Concerning Economic Analysis in SEC Rulemaking" (testimony before the Subcommittee on TARP, Financial Services and Bailouts of Public and Private Programs of the House Oversight and Government Reform Committee, April 17, 2012), www.sec.gov/News/Testimony/Detail/Testimony/1365171489400#.U12BxKIgv_Y.

41. 7 U.S.C. § 19(a)(2012).

42. Davis Polk, "Dodd-Frank Progress Report," May 1, 2014, 2.

43. See, for example, the complexities described by Coates.

44. Government Accountability Office, "Dodd-Frank Act Regulations," 1.

45. See note 2 for a list. We recommend including the quasi-governmental regulators (FINRA, PCAOB, NFA, MSRB) in any mandate because their regulations have economy-wide effects and can substitute for government regulation.

46. Office of Management and Budget, Circular A-4, 39.

47. Some courts have read these as rigorous analysis requirements. See, for example, Business Roundtable v. SEC, 647 F.3d 1144, 1148-49 (DC Cir. 2011), which held that the SEC acted arbitrarily and capriciously when it "inconsistently and opportunistically framed the costs and benefits of the rule; failed adequately to quantify the certain costs or to explain why those costs could not be quantified; neglected to support its predictive judgments; contradicted itself; and failed to respond to substantial problems raised by commenters." Other courts have treated the statutory mandates as requiring only informal consideration of costs and benefits. See, for example, Inv. Co. Inst. v. Commodity Futures Trading Comm'n, 720 F.3d 370, 379 (DC Cir. 2013): "Where Congress has required ‘rigorous, quantitative economic analysis,' it has made that requirement clear in the agency's statute, but it imposed no such requirement here."

48. Exceptions should be made for rules dealing with agency organization, management, and personnel matters and monetary policy actions.

49. Dodd-Frank Act § 113. For more on the SIFI designation process and potential economic impacts, see Peter Wallison, "What the FSOC's Prudential Decision Tells Us about SIFI Designation," AEI Financial Services Outlook (March 2014), www.aei.org/outlook/economics/financial-services/banking/what-the-fsocs-prudential-decision-tells-us-about-sifi-designation/.

50. For an analysis of the potential value of the use of an advance notice of proposed rulemaking, see Jerry Ellig and Rosemarie Fike, "Regulatory Process, Regulatory Reform, and the Quality of Regulatory Impact Analysis" (Mercatus Center Working Paper No. 13-13, July 2013), 40.

51. Office of Management and Budget, Circular A-4, 15-16.

52. "Regulatory Planning and Review," Exec. Order No. 12866; "Improving Regulation and Regulatory Review," Exec. Order No. 13563; and Office of Management and Budget, "Circular A-4."

53. Exec. Order 12866, at § 1(b)(2).

54. Office of Management and Budget, Circular A-4, 15.

55. Circular A-4 explains that "[w]hen more than one baseline is reasonable and the choice of baseline will significantly affect estimated benefits and costs, you should consider measuring benefits and costs against alternative baselines." Ibid., 15.

56. Office of Management and Budget, Circular A-4, 17-42.

57. "Regulatory Planning and Review," Exec. Order 12866, § 6(a)(3)(B).

58. Ibid., § 1(b)(9).

59. Office of Management and Budget, Circular A-4, 17.

60. A similar requirement is found in "Regulatory Planning and Review," Exec. Order 12866, § 1(b)(10).

61. This element is consistent with executive order 13563, which directs agencies to "select, in choosing among alternative regulatory approaches, those approaches that maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity)." See "Improving Regulation and Regulatory Review," Exec. Order 13563, § 1(b).

62. This lack of precision has led to conflicting interpretations of the nature of the mandate. The SEC, for example, maintains that "[n]o statute expressly requires the Commission to conduct a formal cost-benefit analysis as part of its rulemaking activities." See Schapiro, "Testimony Concerning Economic Analysis in SEC Rulemaking." The United States Court of Appeals for the District of Columbia, however, has taken the position that the SEC's organic statutes require an analysis that includes, among other things, a quantification of a regulation's costs and benefits, to the extent possible. See, for example, Business Roundtable v. SEC.

63. 5 U.S.C. § 706 (2012).

64. Quasi-governmental regulators' chief economists could offer advice but would not be official members of the peer-review group, as this would put them in the improper position of reviewing the work of the agencies that oversee them.

65. The peer review function could be modeled upon the Council of Inspectors General on Integrity and Efficiency. That process is described in Commodity Futures Trading Commission, "Semiannual Report of the Office of Inspector General," Period Ending September 30, 2013, 14, www.cftc.gov/ucm/groups/public/@aboutcftc/documents/file/oigsar093013.pdf.

66. President Obama directed independent regulatory agencies to "consider how best to promote retrospective analysis of rules that may be outmoded, ineffective, insufficient, or excessively burdensome, and to modify, streamline, expand, or repeal them in accordance with what has been learned" and to release these "analyses, including supporting data and evaluations . . . online whenever possible." See "Regulation and Independent Regulatory Agencies," Exec. Order 13579, § 2(a).

67. Alternatively, the agency could notify Congress that it is embarking on a rulemaking to eliminate a rule for which the net costs exceed the net benefits.

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Tuesday, September 16, 2014 | 5:00 p.m. – 6:00 p.m.
The Constitution as political theory

Please join us for the third-annual Walter Berns Constitution Day Lecture as James Ceasar, Harry F. Byrd Professor of Politics at the University of Virginia, explores some of the Constitution’s most significant contributions to political theory, focusing on themes that have been largely unexamined in current scholarship.

Wednesday, September 17, 2014 | 8:10 a.m. – Thursday, September 18, 2014 | 1:30 p.m.
Third international conference on housing risk: New risk measures and their applications

We invite you to join us for this year’s international conference on housing risk — cosponsored by the Collateral Risk Network and AEI International Center on Housing Risk — which will focus on new mortgage and collateral risk measures and their applications.

Thursday, September 18, 2014 | 2:15 p.m. – 3:00 p.m.
Speaker of the House John Boehner on resetting America’s economic foundation

Please join us as Speaker John Boehner (R-OH) delivers his five-point policy vision to reset America’s economy.

Friday, September 19, 2014 | 9:15 a.m. – 11:00 a.m.
Reforming Medicare: What does the public think?

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