SEC Chair Mary Schapiro told a House oversight panel of the strengthened role of economists in SEC rulemakings. In testimony before the House TARP and Financial Services Oversight Subcommittee, the SEC Char emphasized that economists must play a central role in rulemaking, whether in identifying concerns or issues that may justify regulatory action or analyzing the likely economic consequences of competing approaches. Further, agency economists should be involved at the earliest stages of the rulemaking process, even before the specific preferred regulatory course is determined, and throughout the course of writing proposed and final rules. Close collaboration with the Division of Risk, Strategy, and Financial Innovation will help to integrate economic analysis as key policy choices are being made, she noted, thereby assisting in the evaluation of different or competing policy options by identifying the major economic effects of those options and influencing the choice, design, and development of policy options.
This approach will also assist in the evaluation of whether and to what extent any proposed policy would promote efficiency, competition, and capital formation, as well as improve the quality of regulation, better support policy choices made by the Commission, and increase confidence in the regulatory process. Chairman Schapiro also said that the SEC expects to have at least 20 additional economists join the Division over the coming months. Moreover, the Commission will continue to pursue additional hiring opportunities, including requesting additional funding from Congress for 20 additional economists in fiscal year 2013.
More broadly, the SEC’s Chief Economist and General Counsel have jointly developed new guidance for conducting economic analysis, taking into account the recommendations made by the GAO, as well as comments from others, including Members of Congress and the courts. The guidance includes earlier and more comprehensive involvement economists to provide economic analysis of different policy options before a proposed course is chosen and throughout the course of the development of the rule. The guidance also assures that rule releases clearly identify the justification for the proposed rule, such as a market failure or a statutory mandate. When a statute directs rulemaking, the SEC staff should consider the overall economic impacts of the rule, including those attributable to Congressional mandates and those resulting from the Commission’s exercise of discretion;
where feasible, quantifying the costs and benefits and, where not reasonable to do so, transparently explaining why not, and then qualitatively explaining the remaining costs and benefits.
Moreover, an integrated analysis of economic issues, including efficiency, competition, and capital formation, will be contained in the Commission’s rule releases, as well as more explicit encouragement to commenters to provide quantitative, verifiable estimates of costs and benefits. The guidelines call for a fuller analysis and discussion in Commission rule releases of the cost-benefit information received from commenters; and a grter discussion of reasonable alternatives not chosen.