The Benefits Of Financial Regulation

by Stuart Shapiro

Understanding the impacts of complex financial legislation like Dodd-Frank is not easy.  That is part of the reason that it is so easy to demagogue the issue.  The International Monetary Fund issued a report this week on financial regulation in the United States, Europe, and Japan and found encouraging results:

The relatively low levels of economic costs found here strongly suggest that the benefits in terms of less frequent and less costly financial crisis would indeed outweigh the costs of regulatory reforms in the long run, although this study does not attempt to estimate the economic benefits of the regulatory changes. Put another way, banks around the world appear to have a considerable ability to adapt to the regulatory changes without radical actions that would harm the wider economy.

Put even more simply, when Republicans say they want to repeal Dodd-Frank, they are saying they prefer the risk of a financial crisis to minimal costs to financial institutions.

By: Stuart Shapiro

Stuart is a professor and the Director of the Public Policy
program at the Bloustein School of Planning and Public Policy at Rutgers
University. He teaches economics and cost-benefit analysis and studies
regulation in the United States at both the federal and state levels.
Prior to coming to Rutgers, Stuart worked for five years at the Office
of Management and Budget in Washington under Presidents Clinton and
George W. Bush.