Rep. Frank Lucas, Chairman of the House Agriculture Committee, today issued a statement in response to the Commodity Futures Trading Commission's (CFTC) surprise "advisory notice" to further regulate cross-border swaps.
CFTC Inspector General: Agency Taking a Bare Minimum Approach to Cost-Benefit Analysis of Dodd-Frank
Tamara Hinton, 202.225.0184
WASHINGTON – At the request of Reps. Frank Lucas (R-OK) and K. Michael Conaway (R-TX), the Office of the Inspector General (OIG) for the Commodity Futures Trading Commission (CFTC) investigated the cost-benefit analyses of four rules related to the Dodd-Frank Wall Street Reform and Consumer Protection Act. The CFTC is required by the Commodity Exchange Act (CEA) to evaluate the economic impact any proposed regulation will have on regulated entities and markets.
"The IG's report confirms the CFTC's focus on speed rather than deliberation and its bare minimum approach to cost-benefit analysis. We cannot unleash a wave of new regulations without an understanding of the impact they will have on the markets and the economy. The very principle behind cost-benefit analysis and straightforward good government is balance - ensuring regulations' costs to the economy don't outweigh the benefits," said Rep. Frank D. Lucas, Chairman of the House Agriculture Committee.
"This report confirms my grave concern that the Commission has ignored requests that an adequate and comprehensive analysis be conducted. It is now apparent that the Commission has severely limited their approach to cost-benefit, largely excluding the opinion and input of economists for that of lawyers. We owe it to the sanctity of the American financial system and our nation’s economic growth, competitiveness, and innovation to explore all options that would force the Commission to move towards a more robust examination of costs and benefits," said Rep. K. Michael Conaway, Chairman of the Subcommittee on General Farm Commodities and Risk Management.
A copy of the report can be found here. Highlights of the report are below.
1. Rulemaking is being rushed to meet arbitrary deadlines.
- Staff and management were aware that market participants might refrain from comment on conduct regulations in the mistaken belief that they would not fall within the definitions. However, at this stage in the process, staff indicated the overriding concern was meeting the rule-making deadline under Dodd-Frank,” (p.5).
2. CFTC staff used a bare minimum approach to cost-benefit analysis.
- Generally speaking, it appears CFTC employees did not consider quantifying costs when conducting cost-benefit analyses for the definitions rule. As indicated in the rule’s preamble, the costs and benefits associated with coverage under the various definitions (in light of the various regulatory burdens that could eventually be associated with coverage) were not addressed, and instead the cost-benefit analysis addressed the relative costs and benefits of undergoing the process of determining coverage,” (p.7).
- “While the methodology initially adopted by the Office of General Counsel and the Office of Chief Economist would permit a detailed and thorough approach to the task, in the four proposed rules we examined it appears the Commission generally adopted a 'one size fits all' approach….without giving significant regard to the deliberations addressing idiosyncratic cost and benefit issues that were shaping each rule,” (p. 21).
3. Legal concerns outweigh economic concerns.
- Although staff in the Office of the Chief Economist set about performing a comprehensive cost-benefit analysis that addressed individual tasks mentioned in the rule, the Office of the General Counsel overruled this practice because of fears of litigation. “It is clear that the Commission staff viewed section 15(a) [cost-benefit analysis] compliance to constitute a legal issue more than an economic one, and the views of the Office of General Counsel therefore trumped those expressed by the Office of the Chief Economist….We do not believe this approach enhanced the economic analysis performed,” (p. 22).