Independent financial regulators shouldn't be subject to whims of White House
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Federal regulations impact nearly every aspect of our daily lives, from how much poison a factory can release into the air to how much banks can gamble with their depositors' money. These decisions are important policy choices that directly impact the health, safety and welfare of our nation.

I spent 36 years in the U.S. Senate working on a bipartisan basis for smarter, better regulation, such as passage of the Laxalt-Leahy bill of 1980 and the Administrative Dispute Resolution Act of 1996.

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Today, the calls for regulatory reforms are as strong as ever. Unfortunately, the proposals currently being discussed are more likely to further delay and complicate regulation than improve it. As someone who has worked hard for better financial regulations, I am particularly concerned with proposals to subject rules by independent financial regulators, such as the Securities and Exchange Commission (SEC), to the political process of the Office of Management and Budget (or OMB, which is under the control of the White House).

To see how this might work, let's first consider the financial crisis of 2008-2009. In response, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which directed financial regulators to issue a host of rules to end Wall Street abuses and reduce financial risks. Now, six years after the law was passed, many of these rules haven't yet been adopted. Some have never even been proposed. Some have been proposed, but watered down and laden with loopholes and complexities not intended by Congress. Others have been adopted, but are tied down in court court challenges.

This is clearly a heavily burdened regulatory process. And one of the key contributors is that regulators' current economic analysis requirements, while well-intentioned, have too often morphed from tools to help make regulations effective to a way for opponents to delay, complicate, weaken and kill them.

Under the constant threat of legal challenge, financial regulators have hired more economists, made their rules longer and made their rules more complex to address specific complaints, no matter how remote or unlikely. The result, of course, is typically a plethora of exceptions, qualifiers and exemptions — what we might call loopholes. And perhaps even worse, the process is much slower than it should be. At the SEC, for example, the average time between a proposal and the final adoption of a rule has stretched into years. And, at the end of all this time within the agency, opponents to the rules still are likely to challenge them in court.

Despite these obvious problems, one of the current regulatory proposals is to subject rules from independent agencies to reviews by the president's OMB. Considering the experience of the last several years, this approach would be a mistake for many reasons.

Subjecting independent agencies to executive branch review of their rules would seriously undermine those agencies' independence from the White House. Insulating those agencies from the political maelstrom that swirls through the White House was why they were made independent in the first place. What happens when the "independent" agency disagrees with the White House?

Independent agencies like the SEC already do robust cost-benefit analysis. The proposal would have the agency do a second cost-benefit analysis. Not only does this lead to confusion, and consume more time, but it also would create inconsistencies, opening the door for even more legal challenges.

I agree with the heads of major federal financial regulators and financial reformers who oppose such "reform" efforts.

Effective regulatory reforms need to focus on three main objectives:

  • Restoring economic analysis as a tool to help achieve — not destroy — smart, effective regulation;
  • Speeding up — not slowing down — the regulatory process to ensure regulators can respond to urgent matters in reasonable periods of time, not five or more years; and
  • Simplifying — not further complicating — the ultimate rules.

Let's not undermine the independence of our financial regulators or exacerbate the current shortcomings of our regulatory system. We should be helping regulators better protect the American people and business with smarter regulation, not further paralyzing them.

Levin is a former Democratic U.S. senator from Michigan and is currently senior counsel at Honigman Miller Schwartz and Cohn LLP in Detroit.


The views expressed by contributors are their own and not the views of The Hill.