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What Banking or Securities Market Deregulation, 1970–2016?
In a recent post, I showed that Code of Federal Regulation (CFR) regulatory restrictions and word counts for the three primary federal bank…
In a recent post, I showed that Code of Federal Regulation (CFR) regulatory restrictions and word counts for the three primary federal bank regulators, the Office of the Comptroller of the Currency (OCC), the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) have been rising since 1970. These findings mirrored what my colleagues’ had found by looking at aggregate regulatory restrictions by CFR Title that concerns financial regulation, namely “Title 12 — Banks and Banking” and “Title 17 — Commodity and Securities Exchanges.” Here I delve into the details to offer agency level comparisons of CFR regulatory restrictions and word counts for the three primary federal bank regulators in Title 12 with those of the two primary securities market regulators in Title 17, the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). I reach conclusions similar to those in the earlier post on bank regulation.
As in the earlier posts, I measure the number a regulatory restrictions (e.g., occurrences of words, such as “shall”, “must”, “may not”, “required” and “prohibited”) that appear in the CFR. Also, as before, I use the meta data from the QuantGov website described by my colleagues, McLaughlin, Patrick A., and Oliver Sherouse. 2017. “QuantGov — A Policy Analytics Platform”.
The figure below shows the number of restrictions for the two securities market regulators, as well as the three bank regulators. The regulatory restrictions for banks come from Title 12, parts 1–199, which cover the OCC, parts 200–299, which cover the Federal Reserve, parts 300–399, which cover the FDIC, and from Title 17, parts 1–199, which cover the CFTC, and parts 200–399, which cover the SEC.
The graph shows that in terms of regulatory restrictions, the SEC has always had the most, followed by the Federal Reserve. While the CFTC had the fewest regulatory restrictions in 1970, the agency had the third highest amount by 2016, followed by the FDIC and OCC, respectively. While there exist brief periods when the CFR regulatory restrictions decline, the median growth rates between 1971 and 2016 were 2.6% for the CFTC, 1.8% for the SEC, comparable to the 1.4% for the OCC, 2.5% for the Federal Reserve, and 2.6% for the FDIC.
In terms of CFR word counts, the figure below shows that patterns similar to those for regulatory restrictions emerge. Two notable exceptions include the fact that since 2012, CFR word counts for the Federal Reserve have surpassed those for the SEC. Similarly, FDIC-related word counts since 2012 have surpassed those for the CFTC.
As with the regulatory restrictions, the figure shows that there exist brief periods when CFR word counts concerning financial regulation decline, but overall the number of words has risen. The median growth rates between 1971 and 2016 were 2.6% for the CFTC and 2.3% for the SEC, which is comparable to the 2.7% for the OCC, 2.9% for the Federal Reserve, and 2.8% for the FDIC.
Keep in mind that regulatory changes can contribute to a crisis (as I discussed in a recent post), but regulatory changes and deregulation are not the same thing. Also, the results presented here offer one, but by no means the only way to examine the issue of whether financial deregulation occurred leading up to the last crisis. Still, in the strict sense of the word “deregulation”, we can reject claims such as the following passage in the Financial Crisis Inquiry Commission Report (see p. xviii):
More than 30 years of deregulation and reliance on self-regulation by financial institutions, championed by former Federal Reserve chairman Alan Greenspan and others, supported by successive administrations and Congresses, and actively pushed by the powerful financial industry at every turn, had stripped away key safeguards, which could have helped avoid catastrophe.
Note, here I am explicitly critiquing the claim that there were “more than 30 years of deregulation.” If anything, the results here suggest that rather than deregulation, there’s been an increase in regulatory complexity. Stay tuned for more agency comparisons.