Economic Analysis by Federal Financial Regulators

Why and How Independent Agencies Should Conduct Regulatory Impact Analysis

“…58 Even some independent financial regulatory agencies that are required by law to consider benefits and costs do not prepare very thorough benefit-cost analyses. 59 A study of SEC regulations issued before the 2012 economic analysis guidance found that the SEC's assessments of the problem, baseline, alternatives, benefits, and costs were far less complete than those conducted by executive branch agencies. 60 A related but distinct problem is "ready-fire-aim" rulemaking, in which the regulatory agency makes key decisions first and then expects analysts to produce a document that supports those decisions.…”

“…98 "Because CPSC compliance actions have significantly altered the state of the market, the environment before these actions occurred represents the best approximation of how the market would have operated in the absence of CPSC intervention and is the appropriate reference baseline for evaluating the impact of the rule." Consumer Product Safety Commission, supra note 87, at 59 it did not perform its own independent cost analysis. 102 A consultant's study submitted by broadcasters estimated that a digital tuner would increase the cost of a TV set by $16 in 2006.…”

Challenges for Cost-Benefit Analysis of Financial Regulation

“…As I look over financial regulation, however, I struggle to come up with any coherent and quantifiable aim describing current regulations that might be formalized in cost-benefit analysis. (Peirce [2013] and Ellig and Peirce [2014] measure more carefully a fairly low standard of cost-benefit analysis in current financial regulation. )…”

“…When it doesn't just gum up the works with legal fees and paperwork, financial regulation is famous for unintended consequences, induced moral hazard, for failure to meet its goals, and for setting the stage for a larger crisis next time. Financial regulations are often enacted with little concrete definition, to say nothing of quantification, of their costs and benefits (for example, see Peirce 2013;Ellig and Peirce 2014). Regulators and economists have little understanding of causal mechanisms that may provide benefits and incur costs.…”

Regulatory Costs of Being Public: Evidence from Bunching Estimation

“…However, our estimates only constitute part of the inputs to the cost-benefit analysis because we do not attempt to quantify the general equilibrium effects of regulation, which is also important for the regulator's decision (e.g. Peirce, 2012;Cochrane, 2014;Leuz and Wysocki, 2016). In other words, the presence of bunching only means that regulations are privately costly for the regulated firms, it does not necessarily mean that regulations are socially costly.…”