Monday, May 09, 2011

Senate Banking Committee Members Ask SEC Inspector General to Conduct Economic Analyses of Dodd-Frank Proposed Regulations

In a letter to the SEC, Republican members of the Senate Banking Committee asked for an SEC Inspector General review of the economic analyses performed by the Commission with regard to six specific and significant Dodd-Frank regulatory implementation initiatives. The Senators request a report by the SEC IG on its review by June 13. The Senators noted that the rules adopted under the Dodd-Frank Act will have a long-term effect on economic growth; and affect how consumers and businesses obtain credit, allocate capital, and manage risk. The request for the IG review follows a similar letter in February raising the concern that the regulators are sacrificing quality and fairness in exchange for speed. The letter was signed by Senator Richard Shelby (R-AL), the Committee’s Ranking Member, Senator Mike Crapo (R-ID) Senator Bob Corker (R-TN), Senator Jim DeMint (R-SC). Senator David Vitter (R-LA), Senator Mike Johanns (R-NE), Senator Patrick Toomey (R-PA), Senator Mark Kirk (R-Il), Senator Jerry Moran (R-KN), and Senator Roger Wicker (R-MS).

According to Senator Crapo, many the proposed rules implementing Dodd-Frank contain cursory, boilerplate cost-benefit analysis that does little to quantify the costs. An April CFTC Inspector General report raises a number of troubling issues with the cost benefit analysis being done by the CFTC and the Senators think that there might be similar problems with SEC rulemaking.

The letter states that the SED IG review should be confined to six specified SEC rulemakings: credit risk retention (which is a joint rulemaking with the banking regulators), clearing agency standards for operation and governance, regulation of security-based swap execution facilities, registration of municipal advisors, conflict minerals, and a joint rulemaking with the CFTC on reporting by investment advisers to private funds and certain commodity pool operators and commodity trading advisors on Form PF.

In the report, the SEC IG must include a description of any statutory or other requirements to perform economic analysis, as well as any internal policies or guidance that the SEC used to ensure rigor and consistency in the economic analysis of its proposed regulations, an assessment of the degree to which the SEC staff understood and followed statutory requirements and the Commission’s own requirements, and the degree to which the SEC itself complies with these requirements, a description of any discretionary economic analyses that the SEC voluntarily undertook on an ad hoc basis to ensure that its rulemaking was effective and efficient, and an assessment of the relevant qualifications of the SEC staff who conduct economic analyses.

Importantly, the Senators also the SEC IG to review the economic analysis conducted in connection with the rulemakings, with particular emphasis on the quantitative methodologies used to evaluate the cost and benefits of proposed regulations, and the effects that those regulations could have on job creation and economic growth, and the quantitative methods the SEC employs to categorize or rank the effects of proposed regulations.

The IG must also consider as part of the economic analysis the extent to which the SEC considers alternative approaches to its proposed regulations and examines the costs and benefits of reasonable alternatives, as well as the extent the SEC seeks public input and expertise in evaluating the costs and benefits and economic impact of the proposed regulations and the extent the Commission incorporates that public input into the proposed regulations. Finally, the SEC IG must determine the transparency of the Commission’s economic analysis.