Roberta Romano Further Assessment of the Iron Law of Financial Regulation: A Postscript to Regulating in the Dark (01 Nov 2014) Available at ECGI: http://ecgi.global/working-paper/further-assessment-iron-law-financial-regulation-postscript-regulating-dark
In an earlier companion essay, Regulating in the Dark, I contended that there is a systemic pattern in major U.S.
financial regulation: (i) enactment is invariably crisis driven, adopted at a time when there is a paucity of information regarding what has transpired, (ii) resulting in off-the-rack solutions often poorly fashioned to the problem at hand, (iii) with inevitable flaws given the dynamic uncertainty of financial markets, (iv) but arduous to revise or repeal because of the stickiness of the status quo in the U.S. political framework of checks and balances. This pattern constitutes an ?Iron Law? of U.S. financial regulation. The ensuing one-way regulatory ratchet generated by repeated financial crises has produced not only costly policy mistakes accompanied by unintended consequences but also a regulatory state whose cumulative regulatory impact produces over time an increasingly ineffective regulatory apparatus. This Postscript analyzes the experience with regulators? implementation of Dodd-Frank since the publication of the earlier essay. After a discussion of broad issues related to the statute and its implementation, the analysis focuses on two provisions by which Dodd-Frank exemplifies the difficulties that are created by legislative strategies conventionally adopted in crisis-driven legislation, off-the-rack solutions along with open-ended delegation to regulatory agencies as legislators, who perceive a political necessity to act quickly, adopt ready-to-go proposals offered by the policy entrepreneurs to whom they afford access: the Volcker rule, which prohibits banks? proprietary trading, and the creation of the Consumer Financial Protection Bureau. The analysis bolsters the original essay?s contention regarding the inherent flaws in major financial legislation and the corresponding benefit for improving decision-making that would be obtained from employing, as best practice, the legislative tools of sunsetting and experimentation to financial regulation. The use of those techniques, properly implemented, advances means-ends rationality, by
better coupling the two, and improves the quality of decision-making by providing a means for measuring and remedying regulatory errors.
An extensive literature has analyzed the accountability of administrative agencies, and in particular, their relationship to Congress. A well-established strand in the literature emphasizes that Congress retains control over agencies by their...Read more
Codes of conduct are a well-accepted feature of European corporate governance. Listed corporations are obliged to annually state their compliance with a corporate governance code or to explain their non-compliance. Whilst it is agreed that...Read more
Are regulatory interventions delayed reactions to market failures or can regulators proactively pre-empt corporate misbehavior? From a public interest view, we would expect “effective” regulation to ex ante mitigate agency conflicts between...Read more
Banks and bank governance are different. We critically assess the arguments used to pervade these divergences in operational activities. We also question if and how, in light of the specificity of banking activities, bank governance translates...Read more