The latest issue of the Yale Law Journal (and Yale Law Journal Forum) has a terrific series on the hot topic of cost-benefit analysis in financial regulation. I had planned on featuring John Coates’s important article-length contribution in the AdLaw Bridge Series, but Fabrizio Di Mascio over at the Osservatorio AIR beat me to the punch with a great summary of all the contributions.
Check out the full review here, but here’s a preview:
An article by John Coates IV on the Yale Law Journal calls into question the efforts to impose judicially reviewed, quantified Cost-Benefit Analysis (CBA) on independent financial agencies in the context of the sweeping regulatory change triggered by the housing and financial crises of 2008 in the US. Case studies of six rules reveal that reliable quantified CBA remains unfeasible in the short time since it is simply expert judgement in numerical disguise. As a result, judicial review of quantified CBA of financial regulation is not likely to generate benefits (transparency and regulatory quality) that exceed its costs (regulatory delay, camouflage, partisanship, waste of resources).
Responses to Professor Coates’s article come from Eric Posner and Glen Weyl (here), Cass Sunstein(here), and Bruce Kraus (here), with a short reply from Professor Coates (here). The entire series is a great read for those interested in cost-benefit analysis or rulemaking more generally at independent financial regulators.
For what it’s worth, my views on the subject are quite similar to those of Professors Posner and Weyl. In fact, back in March 2013, my colleague Paul Rose and I set forth our views in a report commissioned by the U.S. Chamber of Commerce (available here). As the title of the report suggests, we emphasized the importance of cost-benefit analysis in financial regulation as a matter of law and policy. (But we also expressed concern—albeit in a more apologetic manner than Professor Coates and many other critics—about the D.C. Circuit’s aggressive approach to judicial review in Business Roundtable v. SEC.) Although my views on potential solutions going forward are not completely settled, I’m attracted to the idea of making financial regulation subject to presidential review via the Office of Information and Regulatory Affairs (OIRA).
No doubt we’ll continue to see legislative proposals to deal with economic analysis in financial regulation, and this series helps move along the debate.