New Financial Regulations Will Expand Bureaucracy


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Sarbanes Oxley : Governance : Thought Leader

New Financial Regulations Will Expand Bureaucracy

John Berlau
Director
Competitive Enterprise Institute

In a new study, Competitive Enterprise Institute scholars size up the Treasury Department’s recent proposal to restructure the way financial institutions are regulated, finding that the plan has serious flaws and would effect a massive, and unnecessary, expansion of federal power.

The authors, CEI Senior Fellow Eli Lehrer and Center for Entrepreneurship Director John Berlau, evaluate the 220-page Treasury document Blueprint for a Modernized Financial Regulatory Structure on a point by point basis, praising its sensible elements and taking the planners to task for missteps in their policy brief “A Flawed Blueprint: A Free Market Analysis of the Treasury Department’s Financial Regulation Proposal.”

“In some cases the Blueprint does ask important questions about what government should do. In fields as diverse as insurance and mortgage lending, it asks fundamental questions and comes to sensible solutions,” write Lehrer and Berlau. “However, in far too many other places, it proposes creating new bureaucratic structures with new powers and new missions as if these will automatically result in a better financial system for the United States. They will not.”

Motivated in part by widespread unease over dislocations in the subprime mortgage market, the Blueprint includes an array of proposals, many of which had previously been under consideration independent of problems in the housing sector. Thus, the report takes something of a “kitchen sink” approach to financial regulation, including provisions relating to insurance chartering, credit unions, payment systems, deposit insurance and more. It is not clear what, other than a poorly defined desire for “stability,” the long term goals of the Blueprint actually are.

“America needs a fundamental rethinking of its system of financial regulation that asks questions about what activities properly fall under governmental regulation, which ones might be dealt with through semi-private means, and which ones belong entirely in the hands of the free market,” write Lehrer and Berlau. “The Blueprint fails on this fundamental count.”

CEI is a non-profit, non-partisan public policy group dedicated to the principles of free enterprise and limited government.

For more information about CEI, please visit our website at www.cei.org.

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