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Statement on the Aggregate Impact of Financial Services Regulations

Commissioner Daniel M. Gallagher

March 2, 2015

During a fireside chat at today’s Institute of International Bankers’ 26th Annual Washington Conference, I expressed my concern about the number and aggregate impact of regulations that have been imposed on U.S. financial services firms since the enactment of the Dodd-Frank Act in 2010. These regulations come from an alphabet soup of domestic regulators, including the SEC, and many are related to the edicts of non-accountable international bodies such as the Financial Stability Board. Unfortunately, in promulgating many of these myriad regulations, a robust cost-benefit analysis was not required—and therefore none was performed. Even where a cost-benefit analysis was performed (an exercise for the most part limited to rules adopted by the SEC or CFTC, either independently or jointly with other regulators, given their statutory mandate for cost-benefit analysis), such analysis encompassed only the incremental effects of the rule being considered for adoption. No regulator, as far as I know, has considered the overall regulatory burden on financial services firms when determining whether to impose additional costly regulations. We as regulators are, when it comes to the possibility that our rules are causing death by a thousand cuts, the proverbial ostrich—head firmly entrenched in the sand.

So in an effort to bring some transparency to this critical area, and help the public fully grasp the breadth of recent rulemaking, I and my staff prepared a diagram,[1] which I shared with the attendees at today’s conference. I hope this stark depiction can spark a much-needed debate about the regulatory burden that has been placed on our financial services industry in just the last 4.5 years alone. In particular, I hope that the information informs consideration of future regulatory endeavors, and I would hope that academics, the financial services industry, and other interested parties will undertake similar, more detailed analyses.[2] The stakes here are considerable: regulatory burdens divert capital away from the real economy—this acts as a barrier to entry for new market participants and further entrenches those institutions that are increasingly “too big to fail.”

[1] I am very grateful for the assistance provided by the SEC’s publications office for the graphic design work.

[2] Unfortunately, given my small staff, I will not be able to keep this chart updated going forward, but if there are certain categories of regulations or regulators that were omitted, please let my office know, and we can determine whether to republish an updated version. One of the sources that we referenced is a database of regulations affecting financial services firms maintained and apparently updated regularly by the St. Louis Federal Reserve; this may be a helpful resource for interested parties undertaking additional analysis of the aggregate burden of regulation on financial services firms.