U.S. Senator Richard Shelby (R-AL), ranking Republican on the Committee on Banking, Housing, and Urban Affairs, today introduced the Financial Regulatory Responsibility Act of 2011. The legislation holds financial regulators accountable for rigorous, consistent economic analysis on every new rule they propose. It requires them to provide clear justification for the rules, and to determine the economic impacts of proposed rulemakings, including their effects on growth and net job creation. This bill also improves the transparency and accountability of the regulatory process and reduces the burdens of existing regulations. In addition, the legislation mandates that if a regulation's costs outweigh its benefits, regulators are barred from promulgating the rule. The Financial Regulatory Responsibility Act of 2011 is cosponsored by all Republican members of the Banking Committee and is supported by the U.S. Chamber of Commerce.
Attached are the bill text along with a one-page summary, as well as the letter of support from the U.S. Chamber of Commerce. Also attached is a letter from Shelby to Banking Committee Chairman Tim Johnson (D-SD) requesting a hearing on the Financial Regulatory Responsibility Act of 2011. Further statements of support from Banking Committee Republicans and former Chief Economists of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) are included below.
The Financial Regulatory Responsibility Act of 2011 is the culmination of a series of actions taken by Banking Committee Republicans over the past several months. In February, committee Republicans wrote to financial regulators urging them to take more seriously public comments and cost-benefit analyses of proposed rules. In May, committee members wrote to the Inspectors General (IG) of the financial regulators requesting that they evaluate the economic analysis performed by their respective agencies. Each of these letters is also attached. Upon receipt of the IG reports, Senators Shelby and Crapo (R-ID), ranking Republican on the Subcommittee on Securities, Insurance, and Investment, issued a statement regarding their serious concern with many of the issues raised. In July, Shelby called for Congressional action when the U.S. Court of Appeals for the District of Columbia Circuit struck down the SEC's proxy access rule because the Court found that the SEC failed to adequately consider the economic effects of the rule.
"American job creators are under siege from the Dodd-Frank Act," said Shelby. "In their rush to expand the reach of government into our private markets, Congressional Democrats refused to consider the impact of the Dodd-Frank Act on economic growth or job creation. As a result, regulators are about to subject those who had nothing to do with the financial crisis to hundreds of new rules and regulations without determining whether the benefits exceed the costs. More American workers will lose their jobs as Washington bureaucrats implement the Democrats' vision of a federally supervised economy. My colleagues and I are simply proposing that each financial regulator determine whether the economic cost of a new regulation exceeds its economic benefit. If it does, then the regulation should not be implemented. The President likes to talk about "jobs saved'. Here is his opportunity to save some jobs by supporting the sensible legislation we are introducing today."
"Many of the proposed Dodd-Frank rules contain cursory, boilerplate cost-benefit analyses that do little to quantify the rules' costs and benefits and their effect on the economy," said Senator Crapo. "The court's unanimous decision to invalidate the SEC proxy access rule for failing to adequately analyze its economic costs reaffirms that economic analysis matters and that a check-the-box mentality will not suffice. By requiring federal financial regulators to conduct meaningful economic analysis, we will get better rules that can withstand scrutiny of whether the benefits of the proposed rule outweigh its cost."
"The Dodd-Frank bill granted a massive amount of power to bureaucrats who are subject to very little oversight," said Senator David Vitter (R-LA), a member of the Banking Committee. "Our bill would offer a much needed fix by ensuring that new rules that could have far-reaching effects are first subject to a rigorous economic analysis that looks at their effectiveness."
"With 14 million Americans looking for work, our government's first priority should be to create an environment where businesses can grow and hire workers," said Senator Jerry Moran (R-KS), also a member of the Banking Committee. "But, businesses and banks alike are hesitant about making plans for the future as they wait for the next burdensome rule or regulation coming out of Washington. It is important that our regulators complete full economic analysis before proceeding to pile regulation after regulation onto an economy still struggling to recover."
The Financial Regulatory Responsibility Act of 2011 would ensure that all financial regulators conduct comprehensive and transparent economic analysis in advance of adopting new rules. This analysis will help regulators and the public think through what each rule is intended to accomplish and what the costs of achieving those objectives are. It sets forth the factors that agencies must consider in their analysis, allows the public to comment, and requires the agency to revisit the effectiveness of the rule five years after it takes effect. The bill would also establish a council of chief economists to bolster the quality of economic analysis being conducted and to ensure that the financial regulators work together to understand the aggregate effects that financial regulations are having on the economy. Through a judicial review mechanism, the bill would ensure that the agencies take their new economic analysis requirements seriously. Finally, the bill would mandate that a rule does not take effect if its costs outweigh its benefits.
"As we alter our system of financial regulation, it is extremely important that we focus upon the economic consequences of contemplated regulatory actions," said Chester Spatt, the Pamela R. and Kenneth B. Dunn Professor of Finance and the Director of the Center for Financial Markets at Carnegie Mellon University. "The proposed legislation would heighten the regulatory emphasis on the underlying economics and on undertaking after-the-fact assessments of regulatory impacts. Importantly, it also would heighten the significance of the Chief Economists of financial regulators in future policy debates in Washington." Mr. Spatt served as the Chief Economist and the Director of the Office of Economic Analysis at the SEC from 2004 to 2007.
"The proposed bill encourages rigor and transparency in the economic analysis that is used to support the federal rulemaking process," said Jeff Harris, the Dean's Professor of Finance at Syracuse University and former Chief Economist at the CFTC from 2007 to 2010. "Sound economic analysis should always be central to rulemaking and often serves to temper overzealous regulation. Given the recent clamor about the role of economic analysis within various agencies, the bill helps to refocus rulemaking on this central tenet. The recommended Chief Economist Council is particularly innovative, and holds the promise to improve interagency cooperation and to give economists more visibility beyond the walls of an individual agency."