September 16, 2011
Krawiec Analyzes Participation in the Volcker Rule Rule-making Process
Posted by Erik Gerding

Following up on the on-line forum she organized earlier this week of Reforming Financial Reform, Kim Krawiec (Duke) presented her paper "'Don’t 'Screw Joe the Plummer': The Sausage-Making of Financial Reform" today here at Colorado.

The paper is an empirical study of who is participating in the rule making of who is participating in the rule-making process in which the Volcker Rule is taking shape.  Here is the abstract:

One of the most persistent criticisms of Dodd-Frank is the extent to which it punts meaningful issues to regulators. Many worry that, largely freed from public scrutiny, the lawmaking process is easily captured by private interests once lawmaking activity moves to federal agencies. This critique begs the question: what happened to major Dodd-Frank provisions once lawmaking power shifted from Congress to federal agencies? Are industry groups attempting to influence outcomes? Is there a meaningful counterbalance to influential industry voices? What is the public salience of the reform? Are relevant public interest groups engaged in the issue?

This article employs section 619 of the Dodd-Frank Act, popularly known as the Volcker rule and frequently touted as one of the most important pieces of modern financial reform, to examine the foregoing critique. I analyze the roughly 8000 public comment letters received by FSOC on the Volcker rule and the meeting logs of the Federal Reserve, the CFTC, the SEC, and the FDIC. This analysis reveals a surprising level of public activity, but also a stark difference in investment by financial institutions versus all other actors in influencing Volcker rule implementation. The article concludes that theories regarding the Congressional decision to legislate directly, versus delegating lawmaking authority to other governmental branches, shed light on the Volcker rule, though the normative implications to be drawn from that analysis are in the eye of the beholder.

The results in the paper are striking.  The FSOC received an outpouring of thousands of comments from citizens on the rule, but most of them were based on form letters provided by a handful of public interest groups.  Written comments that focused on the substance of the rule -- and moreover in-person meetings with regulators -- were overwhelmingly made by financial firms and law firms representing financial firms.  Those written public comments, in turn, overwhelmingly featured calls for narrower definitions of "proprietary trading" and more exemptions from the rule.

The paper will be of interest not only to those of us interested in financial regulation, but also administrative law scholars and others interested in the political economy of rule-making. 

Administrative Law, Financial Crisis, Financial Institutions, Legal Scholarship | Bookmark

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