Regulatory capture

Regulatory quakes and tremors

If there were a regulatory Richter scale that measured the shaking of the financial system, the 2010 Dodd-Frank Act would register about 8, while the 2011 Basel III framework might be a bit above 7.  (For reference, the 1906 San Francisco earthquake was a 7.8). Fortunately, this shaking is mostly for the better – helping to make the financial system more resilient in the long run.

The new “Bailout Prevention Act” of Senators Vitter and Warren also might be an 8 on the shaking scale, but it would be a true disaster, because it undermines the Fed’s role as crisis lender of last resort. In contrast, the Senate Banking Committee’s new discussion draft of a “Financial Regulatory Improvement Act of 2015” is probably a 2 or a 3. If enacted, it will be “felt slightly by some people” but probably won't do much damage...

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The SEC is in the Wrong Business

A recent open letter from an SEC Commissioner reminded us of several absurdities of the U.S. financial regulatory apparatus. The Commissioner railed against the Treasury Office of Financial Research (OFR) report on Asset Management and Financial Stability. At the request of the Financial Stability Oversight Council (FSOC), the OFR sought to analyze activities in the asset management industry that could pose risks to the broader financial system...
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