Some Mid-Term Perspectives on Financial Sector Deregulation
The current administration has as a stated policy objective to implement “historic deregulation” across the economy, including the financial sector. The Center on Regulation and Markets at Brookings continues to track the administration’s efforts to implement changes by compiling a database of regulatory notices across federal regulatory agencies, including financial regulatory agencies. In what follows, I present an aggregated view of the complexity and verbosity of the Code of Federal Regulations (CFR) across financial regulatory agencies through 2019.
To understand the exercise, in an earlier post, I discussed the trends for regulatory restrictions, including occurrences of words, such as “may not”, “must”, “prohibited”, “required” and “shall”, as well as total word counts found in CFR Title 12 “Banks and Banking” and CFR Title 17 “Commodity and Securities Exchanges” from 1970 to 2016. Here, I update the results through 2019 and add more agencies, using the recently released RegData 3.2 Full Dataset. In any given year, the CFR updates for Titles 1–16 reflect information as of January 1 of that year, while updates for Title 17–27 reflect information as of April 1 of that year. That means that the Title 12 results for “Banks and Banking” in 2019 reflect information through January 1, 2019, while the Title 17 results for “Commodity and Securities Exchanges” in 2019 reflect information through April 1, 2019.
Before presenting the results, keep in mind that the Economic Growth, Regulatory Relief and Consumer Protection Act became law on May 24, 2018, and regulatory rule-making takes time to propose and finalize. In all likelihood, it will take more time to assess the current administration’s full impact on the CFR (at least another two years).
What’s Happened with CFR Regulatory Restrictions?
The figure below shows the number of restrictions for the five agencies that cover banking regulation, and the two primary securities and derivatives market regulators. The regulatory restrictions concerning banking come from Title 12, parts 1–199, for the Office of the Comptroller of the Currency (OCC), parts 200–299 for the Federal Reserve, parts 300–399 for the Federal Deposit Insurance Corporation (FDIC), parts 700–799 for the National Credit Union Administration (NCUA) and parts 1000–1099 for the Consumer Financial Protection Bureau (CFPB). In Title 17, parts 1–199 cover the Commodity Futures Trading Commission (CFTC), and parts 200–399 cover the Securities and Exchange Commission (SEC). I rank the agencies listed in the legend of the figure from largest to smallest in terms of 2019 regulatory restrictions.
The figure shows that the SEC had the most regulatory restrictions with 15,487 through April 1, 2019, while the NCUA has the fewest with 3,794 through January 1, 2019. Only the FDIC and OCC had fewer regulatory restrictions through January 1, 2019 than three years prior, while the Federal Reserve, CFPB, and NCUA had more regulatory restrictions through January 1 2019 than three years prior. The SEC and CFTC had more regulatory restrictions through April 1, 2019 than three years prior. Overall, the figure suggests financial regulation for some bank regulators and for all primary securities and derivatives market regulators continues to become more complex.
What’s Happened with CFR Word Counts?
In terms of CFR word counts, the figure below exhibits similar patterns as that for regulatory restrictions except that the CFR parts concerning the Federal Reserve had the highest word count with 1,575,049 through January 1, 2019, while the NCUA has the fewest with 409,779 through January 1, 2019. Only the FDIC and OCC had fewer CFR word counts through January 1, 2019 than three years prior, while the Federal Reserve, CFPB, and NCUA had more CFR word counts through January 1, 2019 than three years prior. The SEC and CFTC had more word counts through April 1, 2019 than three years prior. Overall, these findings suggest that regulation has become more verbose for most of these agencies.
Growth Rates by Agency Between 2016 and 2019
Having shown the general increase in total regulatory restrictions and word counts across agencies in the figures above, I now examine the percentage changes between 2016 and 2019. Table 1 below lists the percentage growth in regulatory restrictions and word counts by agency. The CFPB had the largest increase in regulatory restrictions with a 9.3 percent growth rate, while the FDIC had the largest decrease in regulatory restrictions with a -16.9 percent rate of reduction. In terms of word counts, the CFPB had the largest increase in words with a 13.9 percent growth rate, while the FDIC had the largest decrease in words with a -18.5 percent rate of reduction. The sample median indicates that regulatory restrictions grew 1.1 percent across the agencies, while the total number of words grew 2.1 percent across agencies.
Table 1. Percentage Growth in Regulatory Restrictions and Word Counts by Agency, 2016–2019
Overall, the financial regulatory landscape has not generated much deregulation in terms of its complexity or verbosity through the first two years of the current administration. It will likely take at least two years to assess the current administration’s full impact on the CFR. In the next post, I’ll examine the biggest contributors to increases or reductions in regulatory restrictions by part for these agencies.
Some Mid-Term Perspectives on Financial Sector Deregulation was originally published in FinRegRag on Medium, where people are continuing the conversation by highlighting and responding to this story.