The new Cato Institute 2017 Financial Regulation national survey of 2,000 U.S. adults released today finds that Americans distrust government financial regulators as much as they distrust Wall Street. Nearly half (48%) have “hardly any confidence” in either.
Americans have a love-hate relationship with regulators. Most believe regulators are ineffective, selfish, and biased:
- 74% of Americans believe regulations often fail to have their intended effect.
- 75% believe government financial regulators care more about their own jobs and ambitions than about the well-being of Americans.
- 80% think regulators allow political biases to impact their judgment.
But most also believe regulation can serve some important functions:
- 59% believe regulations, at least in the past, have produced positive benefits.
- 56% say regulations can help make businesses more responsive to people’s needs.
However, Americans do not think that regulators help banks make better business decisions (74%) or better decisions about how much risk to take (68%). Instead, Americans want regulators to focus on preventing banks and financial institutions from committing fraud (65%) and ensuring banks and financial institutions fulfill their obligations to customers (56%).
Americans Are Wary of Wall Street, But Believe It Is Essential
Nearly a decade after the 2008 financial crisis, Americans remain wary of Wall Street.
- 77% believe bankers would harm consumers if they thought they could make a lot of money doing so and get away with it.
- 64% think Wall Street bankers “get paid huge amounts of money” for “essentially tricking people.”
- Nearly half (49%) of Americans worry that corruption in the industry is “widespread” rather than limited to a few institutions.
At the same time, however, most Americans believe Wall Street serves an essential function in our economy.
- 64% believe Wall Street is “essential” because it provides the money businesses need to create jobs and develop new products.
- 59% believe Wall Street and financial institutions are important for helping develop life-saving technologies in medicine.
- 53% believe Wall Street is important for helping develop safety equipment in cars.
Wall Street vs. The Regulators: Public Attitudes on Banks, Financial Regulation, Consumer Finance, and the Federal Reserve
Later this month the Cato Institute will be releasing an in-depth report analyzing the results of the national Cato 2017 Financial Regulation Survey. The survey, conducted in collaboration with YouGov, asked 2,000 Americans what they think of Wall Street, the regulators who oversee Wall Street, the Federal Reserve, and what Americans think of their banks, credit cards issuers, and lenders, among many other important issues. Today we’re pre-releasing several of the survey findings.
With both major party platforms calling for a return to some version of Glass-Steagall, it was a given that, whoever won the Presidential election, the issue would return to the public debate. However, we still need to do considerable work ending bailouts, and a return to Glass-Steagall would most likely divert us from that goal.
It isn’t often that an SEC decision involves the star of a best seller, a “magic shoe box,” and fundamental questions about the meaning of words like “immediate” and “fair.” The SEC made such a decision on Friday.
Last fall, the trading system IEX applied for designation as a stock exchange. IEX, and its CEO Brad Katsuyama, rose to fame several years ago with the publication of Michael Lewis’s popular book Flash Boys. Lewis, ever the artful storyteller, cast Katsuyama as the likeable underdog, exposing and undermining high-frequency traders (HFTs) through the development of IEX. IEX, an alternative trading system, or in the more colorful industry jargon, a “dark pool,” has allowed investors to trade away from market scrutiny and the HFTs that populate “lit” exchanges. But there are advantages to being an exchange, and IEX wants in.
At issue in determining whether to approve the application was the meaning of the word “immediate” in an SEC regulation known as Regulation NMS. Regulation NMS, approved by the SEC in 2005, was intended to increase competition among trading exchanges, resulting in better execution of trades and better prices for investors. In furtherance of that goal, a part of the regulation requires that trades be made at the best price listed on any exchange and that exchanges make their quotations “immediately” and automatically available. In the past “immediate” has been defined as “immediately and automatically executable, without any programmed delay.” Seems clear enough, right?
MetLife notched an important win this week, securing a ruling from a federal court that it is not a systemically important financial institution (SIFI) under Dodd-Frank. Like much of the Dodd-Frank Act, the SIFI designation has been controversial since its introduction in 2010. The designation is intended to help the Financial Stability Oversight Council (FSOC, another Dodd-Frank creation) to monitor companies whose demise could destabilize the country’s financial system. Putting aside the question of whether a group of regulators in Washington could see and stop a crisis more quickly than those in the trenches at the nation’s financial giants, the designation triggers a host of regulatory requirements that many companies would prefer to avoid.
One of the most controversial aspects of the SIFI designation is its black box nature. There is no publicly available SIFI check-list. The rationale for following a more principles- than rules-based approach may be that the definition needs to remain flexible. Companies may be motivated to avoid the letter of such a rules-based approach without avoiding the spirit, leaving FSOC without the ability to monitor a company that, despite not triggering the SIFI designation, still poses a risk to the financial system. But this has left companies in a bind. The SIFI designation has real and substantial ramifications for any company that triggers it, but companies have been unable both to avoid designation and to challenge designation once applied. It’s hard to argue that you don’t fit a certain definition if you don’t know what the definition is.
Of course, not all companies want to avoid SIFI status. Although some have argued that FSOC and other aspects of Dodd-Frank will prevent future bailouts, it seems naïve to think that the government could designate a company as a risk to the entire financial system and then sit idly by as it burns. SIFI designation is a wink and a nod, all but assuring government support if the designated company founders in rocky times.
That’s the title of a new paper that Carl DeNigris and I just published in the Drake Law Review. Here’s the abstract:
It is not surprising that the recent losses at JP Morgan have resulted in calls by current and would-be politicians to remove bankers from the boards of the regional Federal Reserve banks, as JP Morgan CEO Jamie Dimon currently sits on the board of the New York Federal Reserve. There’s even a petition for the “public” to demand Dimon’s resignation.
An oft heard explanation for some of the weakness facing our economy, particularly investment and hiring, is that firms are concerned about policy uncertainty coming from Washington, be it health care, financial regulation, labor regulation, etc. For the most part, those arguments have been based upon anecdote or theory (see Bernanke’s 1983 QJE piece), with some difficulty finding strong empirical support either way. A forthcoming paper in the Journa
The New York Times reports:
President Obama signed into law on Wednesday a sweeping expansion of federal financial regulation….
A number of the details have been left for regulators to work out, inevitably setting off complicated tangles down the road that could last for years…complex legislation, with its dense pages on derivatives practices….