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Professors: Regulators not making most of cost-benefit analyses

April 4, 2013 | Faculty

The U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness (CCMC) released a report written by The Ohio State University Moritz College of Law professors Paul Rose and Christopher Walker titled, The Importance of Cost-Benefit Analysis in Financial Regulation. Rose and Walker found that while regulators sometimes fail to use cost-benefit analyses appropriately, financial regulation grounded in rigorous, transparent, analytical standards is not only more efficient and effective, but is required by law.

“Financial regulators, especially in the context of Dodd-Frank, can and should ground their rulemaking in robust cost-benefit analysis in order to arrive at more rational decision-making and efficient regulatory action as well as to promote good governance and democratic accountability,” the professors wrote in the report. “The SEC’s experience with cost-benefit analysis, both in court and also in practice, provides an important lesson for other financial regulators.”

The report recommends that all financial regulators should use a broader and wider application of cost-benefit analyses to better protect consumers and investors while promoting more efficient markets. Rose and Walker are both fellows with the Law and Capital Markets @ Ohio State program, which aims to further the study of capital markets and corporate law and to enhance their regulation and operation.

“Regulators must follow the law. A rigorous cost-benefit analysis, grounded in facts, is essential to ensure that rules actually work by maximizing the benefits for investors and promoting fair and efficient markets,” said David Hirschmann, president and CEO of CCMC. “Without understanding how a regulation will work in the real world, regulators can’t be certain it will produce the desired benefit. Instead of checking a box after the ink is already dry on a proposed rule, financial regulators should use cost-benefit analyses as a tool to enhance final regulations that ultimately strengthen our capital markets.”

Rose and Walker presented their findings to the CCMC in an event held in Washington, D.C.

Since its inception in 2007, the CCMS has led a bipartisan effort to modernize and strengthen the outmoded regulatory systems that have governed our capital markets. The CCMC is committed to working aggressively with the administration, Congress, and global leaders to implement reforms to strengthen the economy, restore investor confidence, and ensure well-functioning capital markets.

The U.S. Chamber of Commerce is the world’s largest business federation representing the interests of more than 3 million businesses of all sizes, sectors, and regions, as well as state and local chambers and industry associations.

Read the full report here.