# Sound Financial Policy ##### Principled Recommendations for the 119th Congress [ #CatoEcon ](https://x.com/hashtag/CatoEcon) ![Sound Financial Policy Front Cover with No Text](/sites/cato.org/files/styles/aside_3x/public/2024-12/SoundFinancialPolicy%202025_FrontCover%20Image.jpg?itok=ZBbLP3NO) #### Sections 7-part series 1. ##### [Strengthening Financial Privacy in the Digital Age to Protect Consumers from Sweeping Surveillance](/publications/strengthening-financial-privacy-digital-age-protect-consumers-sweeping-surveillance) 2. ##### [Stopping the Next Expansion by Prohibiting the Creation of a Central Bank Digital Currency](/publications/stopping-next-expansion-prohibiting-creation-central-bank-digital-currency) 3. ##### [Opening the Door to Cryptocurrency Innovation by Eliminating Unnecessary Regulatory Barriers](/publications/opening-door-cryptocurrency-innovation-eliminating-unnecessary-regulatory-barriers) 4. ##### [Policymakers’ Environmental, Social, and Governance Concerns Should Not Override the Market’s Allocation of Resources](/publications/policymakers-environmental-social-governance-concerns-should-not-override-markets) 5. ##### [Monetary Policy That Holds the Fed Accountable](/publications/monetary-policy-holds-fed-accountable) 6. ##### [Removing Barriers to Small Business Capital Formation and Expanding Investor Opportunities](/publications/removing-barriers-small-business-capital-formation-expanding-investor-opportunities) 7. ##### [Other Reforms to Boost Competition and Innovation in the Financial Sector](/publications/other-reforms-boost-competition-innovation-financial-sector) Most people want the goods and services they use—including their financial products and services—to meet some set of quality and safety standards, but policymakers rarely contemplate market regulation as a potentially better alternative to government regulation. Since Cato published the first edition of this policy guide in 2022, several members of Congress have introduced legislation that would make beneficial reforms to the monetary and financial systems in the United States. Although the House even passed some of this legislation, Congress has failed to enact any meaningful reforms. As a result, there has been no change to the long-term trend of increasing levels of regulation that fail to make financial markets more resilient. Just as important, Congress and the regulatory agencies have yet to provide much-needed clarity for cryptocurrencies, thus leaving the industry without the well-defined framework it needs. Now more than ever, Americans are losing out as innovation in payments is being driven by developers and customers in other countries. Yet the Cato Institute’s 2022 national survey of Americans’ beliefs about the financial sector suggests that Americans broadly oppose the long-term regulatory trends in US financial markets.[1](#_ednref1) Based on the survey results, most Americans appear to oppose expanding government regulation, even as government officials have consistently expanded financial regulation. While Congress tends to expand government regulation after a period of financial turmoil, Americans oppose such an approach, even in the wake of a crisis, and seem to be open to the idea that market-based regulation can be a better way to promote the public interest. --- [Download Report](https://www.cato.org/sites/cato.org/files/2025-01/Sound-Financial-Policy-Recommendaitons-for-the-119th-Congress.pdf) Most people want the goods and services they use—including their financial products and services—to meet some set of quality and safety standards, but policymakers rarely contemplate market regulation as a potentially better alternative to government regulation. While many assume that no standards would exist in the absence of government regulation, most companies do set standards for their products and services independently of what government requires because doing so attracts customers and enables the companies to earn profits. Competition also provides incentives for other companies to adopt similar—or better—standards. While governments set standards through centralizing legal rules and requirements, markets set standards and enforce rules through competition. Yet both markets and governments have made mistakes. A crucial distinction is that markets have the flexibility to analyze and adapt, while government rules are often sweeping and difficult to change. While many Americans believe that there should be stricter oversight of the financial industry, they do not necessarily want the kinds of oversight found in extensive bills such as the 2010 Dodd-Frank Act. Instead, they want regulators to enforce the rules that are already on the books and do not support expanding the number of rules, especially those that dictate which financial decisions people can make. Americans believe that regulation should serve two primary functions: to protect consumers from fraud (64 percent) and to ensure that financial institutions fulfill obligations to their account holders (53 percent). As the Cato survey shows, Americans believe that regulation should serve two primary functions: to protect consumers from fraud (64 percent) and to ensure that financial institutions fulfill obligations to their account holders (53 percent). Other functions, such as restricting access to risky financial products (16 percent), are a priority among far fewer people. And while public opinion surveys have long reported that Americans have little confidence in Wall Street banks and financial firms, Americans seem to distrust government financial regulators as much as they distrust Wall Street. Nearly half (49 percent) have “hardly any confidence” in either, and only 7 percent say they have a great deal of confidence in either Wall Street or government financial regulators.[3](#_ednref3) These survey results can help inform Congress about developing a better monetary and financial framework for the American people. For decades, Congress has empowered regulators to manage private risks and mitigate private losses to prevent financial-sector turmoil from spreading to the rest of the economy, but most Americans are open to a different approach. For instance, 78 percent of Americans think that regulations too often fail to have their intended effect.[4](#_ednref4) Additionally, Americans do not think that regulators help banks make better decisions generally (77 percent) or, specifically, better decisions about how much risk to take (69 percent).[5](#_ednref5) (See Figure 1.) --- ![SFP 2024 - Figure 1: Only 23% of Americans Believe Regulators Help Finance Professionals Make Better Decisions](https://infogram-thumbs-1024.s3-eu-west-1.amazonaws.com/2a776d3c-5965-435b-b5aa-9b90b0b21259.jpg) A smoothly running financial system makes it easier and less costly to buy consumer goods, raise the capital necessary for launching or operating a business, borrow money for buying or building a home, and invest in ideas that improve productivity and increase economic opportunity. Just as in other areas of the economy, excessive government regulation and involvement in financial markets prevent firms from best serving the needs of their customers and, therefore, society. Cato’s survey results indicate that Americans are very sympathetic to this view. For policymakers who want to improve financial markets, this policy guide provides practical solutions to reduce excessive government regulation and involvement in financial markets. Here’s a preview of the sections included in this policy guide. ##### Section 1 #### [Strengthening Financial Privacy in the Digital Age to Protect Consumers from Sweeping Surveillance](https://www.cato.org/publications/strengthening-financial-privacy-digital-age-protect-consumers-sweeping-surveillance) Americans’ financial privacy has been eroding for more than 50 years, often hidden in the details of complex policies. Congress can establish stronger financial privacy protections by eliminating many Bank Secrecy Act reporting requirements. If financial records are needed, law enforcement should be required to show probable cause to obtain a warrant—a reform that 83 percent of Americans favor.[6](#_ednref6) Shy of eliminating the Bank Secrecy Act or its reporting requirements, Congress could improve financial privacy by enacting inflation-adjusted reporting thresholds for remaining Bank Secrecy Act requirements as well as the Internal Revenue Code, eliminating exceptions in the Right to Financial Privacy Act, and establishing better public oversight for the Financial Crimes Enforcement Network. ##### Section 2 #### [Stopping the Next Expansion by Prohibiting the Creation of a Central Bank Digital Currency](https://www.cato.org/publications/stopping-next-expansion-prohibiting-creation-central-bank-digital-currency) Internationally, governments are increasingly working toward developing and launching central bank digital currencies (CBDCs), which are digital national currencies that are a direct liability of the central bank. But unlike paper dollars, a CBDC would offer neither the privacy protections nor the finality that cash provides to Americans. Launching a CBDC risks ending financial privacy, restricting financial freedom, undermining free markets, and weakening cybersecurity. Congress should prohibit the Federal Reserve and the Treasury from issuing a CBDC. ##### Section 3 #### [Opening the Door to Cryptocurrency Innovation by Eliminating Unnecessary Regulatory Barriers](https://www.cato.org/publications/opening-door-cryptocurrency-innovation-eliminating-unnecessary-regulatory-barriers) Cryptocurrencies remain subject to regulatory uncertainties that hamper their development, along with innovation more broadly. This condition potentially pushes entrepreneurs away from the United States and limits Americans’ ability to take advantage of these advances. Congress should create a pro-competitive regulatory framework for stablecoin issuers; provide a clear, practical test for determining whether a crypto project is decentralized; and clarify that securities laws do not apply to decentralized cryptocurrency projects. Congress should also avoid applying punitive tax rules to the crypto ecosystem and, at the very least, remove capital gains taxes applied to alternative currency use. ##### Section 4 #### [Policymakers’ Environmental, Social, and Governance Concerns Should Not Override the Market’s Allocation of Resources](https://www.cato.org/publications/policymakers-environmental-social-governance-concerns-should-not-override-markets) Congress should ensure that financial regulators do not function as central planners deciding which enterprises are worthy of capital, especially in the name of environmental, social, and governance policy. To achieve this goal, Congress should clarify the scope of mandatory securities disclosures and shrink bank regulators’ responsibilities, thus limiting the extent to which environmental, social, and governance policy can politicize financial market regulation without providing clear benefits. Congress should clearly state that disclosures are limited to the type of information relevant to a company’s prospects for financial success (as originally contemplated by the 1933 and 1934 securities acts) and repeal the sections of the Dodd-Frank Act that direct the Securities and Exchange Commission to promulgate the conflict minerals and pay-ratio disclosure rules. Congress should also require banking regulators to consider solely economic and financial factors when promulgating regulations, rather than factors that might affect the public’s view of a bank, such as the bank’s so-called reputational risks. ##### Section 5 #### [Monetary Policy That Holds the Fed Accountable](https://www.cato.org/publications/monetary-policy-holds-fed-accountable) So long as Congress is inclined to delegate responsibility for conducting monetary policy and limiting financial instability to the Fed, lawmakers should do more to improve the Fed’s performance. For instance, Congress can narrow and clarify the Fed’s legislative mandate and require that the Fed implement rules-based monetary policy. It can also level the field on which the dollar competes with other potential means of payment so that the Fed faces competitive pressure to preserve, and perhaps enhance, the US dollar’s attractiveness as both a domestic and an international exchange medium. A more vibrant financial sector would complement a sounder monetary policy framework, thus providing more economic opportunity for millions of Americans. ##### Section 6 #### [Removing Barriers to Small Business Capital Formation and Expanding Investor Opportunities](https://www.cato.org/publications/removing-barriers-small-business-capital-formation-expanding-investor-opportunities) Congress should enact an exemption to securities registration for equity offerings that raise funds below a certain threshold, such as $500,000 per year. It should also focus on decreasing the barriers to eligibility for accredited investor status. Congress could, for example, consider investors advised by financial advisers who meet the current accredited investor definition as being accredited themselves. ##### Section 7 #### [Other Reforms to Boost Competition and Innovation in the Financial Sector](https://www.cato.org/publications/other-reforms-boost-competition-innovation-financial-sector) Even if Congress repeals the 2010 Dodd-Frank Act in its entirety, a dysfunctional regulatory framework would remain. Nonetheless, the legislation represents the most recent large-scale expansion of federal regulatory power, and it solidified the harmful view that federal regulators can and should prevent people from losing money in financial markets. Among its many faults, the Dodd-Frank Act provides a false sense of security by conferring an aura of safety for firms that play by the act’s rules. It should be repealed in its entirety. Congress should also eliminate duplicative federal agencies, narrow Fannie Mae and Freddie Mac’s focus to the financing of primary homes, revoke Fannie and Freddie’s exemption from the requirement to register their securities offerings, limit the Federal Housing Administration’s single-family insurance portfolio to first-time homebuyers, shrink the Securities and Exchange Commission’s scope to regulate money market mutual funds, and apply a pro-innovation policy framework for the use of artificial intelligence in financial services. #### Endnotes [1](#_edn1). Emily Ekins, “[Cato Institute 2022 Financial Regulation Survey](https://www.cato.org/sites/cato.org/files/2023-12/financial_regulation_survey_topline.pdf),” December 2023. A previous version of this survey reports similar results, thus providing additional support for such statements. See Emily Ekins, “[Wall Street vs. the Regulators: Public Attitudes on Banks, Financial Regulation, Consumer Finance, and the Federal Reserve](https://www.cato.org/survey-reports/wall-street-vs-regulators-public-attitudes-banks-financial-regulation-consumer),” Survey Reports, Cato Institute, September 19, 2017. [2](#_edn2). Emily Ekins, “[Cato Institute 2022 Financial Regulation Survey](https://www.cato.org/sites/cato.org/files/2023-12/financial_regulation_survey_topline.pdf),” December 2023; and Emily Ekins, “[Wall Street vs. the Regulators: Public Attitudes on Banks, Financial Regulation, Consumer Finance, and the Federal Reserve](https://www.cato.org/survey-reports/wall-street-vs-regulators-public-attitudes-banks-financial-regulation-consumer),” Survey Reports, Cato Institute, September 19, 2017. [3](#_edn3). Emily Ekins, “[Cato Institute 2022 Financial Regulation Survey](https://www.cato.org/sites/cato.org/files/2023-12/financial_regulation_survey_topline.pdf),” December 2023. [4](#_edn4). Emily Ekins, “[Cato Institute 2022 Financial Regulation Survey](https://www.cato.org/sites/cato.org/files/2023-12/financial_regulation_survey_topline.pdf),” December 2023. [5](#_edn5). Emily Ekins, “[Cato Institute 2022 Financial Regulation Survey](https://www.cato.org/sites/cato.org/files/2023-12/financial_regulation_survey_topline.pdf),” December 2023. [6](#_edn6). Emily Ekins, “[Cato Institute 2022 Financial Regulation Survey](https://www.cato.org/sites/cato.org/files/2023-12/financial_regulation_survey_topline.pdf),” December 2023. ##### About the Authors [![Nicholas Anthony Cropped](/sites/cato.org/files/styles/author_picture/public/2025-02/NicholasAnthony-cropped.jpg?itok=f4HYrot7)](/people/nicholas-anthony) ##### [Nicholas Anthony](/people/nicholas-anthony) Research Fellow, Center for Monetary and Financial Alternatives [ ](https://x.com/EconWithNick) [![jai-kedia-cropped.jpg](/sites/cato.org/files/styles/author_picture/public/2023-07/jai-kedia-cropped.jpg?itok=In6dB8gW)](/people/jai-kedia) ##### [Jai Kedia](/people/jai-kedia) Research Fellow, Center for Monetary and Financial Alternatives, Cato Institute [ ](https://x.com/jaikedia) [![Norbert Michel Cropped](/sites/cato.org/files/styles/author_picture/public/2025-01/norbert-m-cropped.jpg?itok=8WIx97Dk)](/people/norbert-michel) ##### [Norbert J. Michel](/people/norbert-michel) Vice President and Director, Center for Monetary and Financial Alternatives, Cato Institute [ ](https://x.com/norbertjmichel) [![New Jennifer Schulp cropped image](/sites/cato.org/files/styles/author_picture/public/2023-03/jennifer-schulp-cropped-2.jpg?itok=kdrnmhHr)](/people/jennifer-j-schulp) ##### [Jennifer J. Schulp](/people/jennifer-j-schulp) Former Director of Financial Regulation Studies, Center for Monetary and Financial Alternatives, Cato Institute [![George Selgin](/sites/cato.org/files/styles/author_picture/public/2021-01/George%20Selgin.jpg?itok=daUqyD5g)](/people/george-selgin) ##### [George Selgin](/people/george-selgin) Former Senior Fellow and Director Emeritus, Center for Monetary and Financial Alternatives, Cato Institute [ ](https://x.com/GeorgeSelgin) [ ](mailto:gselgin@cato.org) [![Jack Solowey cropped](/sites/cato.org/files/styles/author_picture/public/2023-12/jack-solowey-cropped-1.jpg?itok=6fpRyXQw)](/people/jack-solowey) ##### [Jack Solowey](/people/jack-solowey) Former Policy Analyst, Center for Monetary and Financial Alternatives, Cato Institute [ ](https://x.com/JackSolowey) [ ](mailto:jsolowey@cato.org)