SEC Reforms Economic Analysis

SEC Chairman Mary L. Schapiro testified today before the Subcommittee on TARP, Financial Services and Bailouts of Public and Private Programs Oversight and Government Reform Committee, U.S. House of Representatives.  Excerpts below:

Among the specific steps that we have been taking, and that are included in the current staff guidance, are:

  • earlier and more comprehensive involvement of RSFI staff in the rulemaking process, so that RSFI economists can provide economic analysis of different policy options before a proposed course is chosen and throughout the course of the development of the rule;
  • assuring that rule releases clearly identify the justification for the proposed rule, such as a market failure or a statutory mandate;
  • where a statute directs rulemaking, staff should consider the overall economic impacts of the rule, including those attributable to Congressional mandates and those resulting from the Commission’s exercise of discretion;
  • where feasible, quantifying the costs and benefits and, where not reasonable to do so, transparently explaining why not, and then qualitatively explaining the remaining costs and benefits;
  • more integrated analysis of economic issues (including efficiency, competition, and capital formation) in the Commission’s rule releases;
  • more explicit encouragement to commenters to provide quantitative, verifiable estimates of costs and benefits, and fuller analysis and discussion in Commission rule releases of the cost-benefit information received from commenters; and
  • greater discussion of reasonable alternatives not chosen.
To the extent that costs and benefits cannot reasonably be quantified, the guidance indicates that the release should:

  • include an explanation of the reason(s) why quantification is not practicable;
  • include a qualitative analysis of the likely economic consequences of the proposed rule and reasonable regulatory alternatives; and
  • discuss the strengths and limitations of the information supporting the qualitative cost-benefit analysis.

Read Schapiro’s full testimony. See also, SEC Addressing Gaps in Analysis (WSJ, 4/16/2012)

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