Former regulators discuss cost-benefit analysis, collaboration in rule-making
September 27, 2016

Former regulators examined issues including cost-benefit analyses of rules and collaboration among regulatory agencies during a panel discussion at the Securities Industry and Financial Markets Association's Annual Meeting in Washington, D.C., on Tuesday.

Daniel Gallagher, president of Patomak Global Partners and a former member of the Securities and Exchange Commission, said cost-benefit analyses show the regulator's thought process, which is important because some rules are made for “end-oriented” political goals.

“Everyone assumes that it's this vast conservative conspiracy to invite the regulated community in to show that any one regulation is more costly than benefits that would flow from it,” Gallagher said.

Instead, “transparency is really what it's all about,” he said.

The discussion included the Dodd-Frank Act's impact.

Donald Kohn, senior fellow at The Brookings Institution and former vice chairman of the Federal Reserve, said Dodd-Frank's “broad outlines” were necessary, but there are elements of the law “that maybe wouldn't pass a cost-benefit” analysis.

John Dugan, partner at Covington & Burling and former comptroller of the currency, said that the arrival of a new presidential administration next year will likely prompt an assessment process of existing regulations. He hopes for a change in the attitude that certain regulations, such as Dodd-Frank, are “set in stone,” he said.

Kohn and Gallagher talked about agencies better coordinating their rule-making though they have separate congressional mandates and focus on different areas of the financial industry.

“The Balkanization of the US regulatory system impedes cost-benefit” analyses, Kohn said.

During a discussion of risk appetite in policy-making amid the recovery from the 2008 financial crisis, Kohn noted that the regulatory environment is creating “subtle” problems for growth. He worries about bank-dependent small and midsize businesses paying higher rates and facing tougher credit restraints, he said.

Banks, “when they're working well, make a substantial contribution to the vitality of the US economy, and impeding their ability to do that is a problem,” he said.