Banking on burden reduction: how the global financial crisis shaped the political economy of banking regulation

Abstract

The Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA) of 1996 requires the Federal Financial Institutions Examination Council—an interagency council composed of US banking regulators—to conduct decennial retrospective reviews of existing banking regulations, with an emphasis on reducing regulatory burden. EGRPRA reviews provide a lens to study the political economy of banking regulation before and after the global financial crisis (GFC) of 2007–2009. Through comparative case studies of EGRPRA reviews in 2007 and 2017, this article documents how ex post impact assessment of banking regulation and stakeholder participation in banking regulatory processes have changed over the last 10 years. Using within-case process tracing and content analysis of an original dataset of government documents and public input, this article analyzes the extent to which changes in review processes, participation, and outcomes can be attributed to the policy shock of the GFC and/or shifting political, regulatory, and/or market contexts. The results suggest that government–market interactions have changed considerably since the GFC and that regulatory politics explain many of these changes. While retrospective review and stakeholder participation therein may enable more effective and legitimate regulations and rulemaking processes, much work remains to realize these potential benefits in banking regulation.

Appendices

Appendix A: Content analysis codebook

Submitter categories

• Bank or bank employee: Insured depository institution or other financial institution offering intermediation services (e.g., savings and loans, thrifts, mortgage lenders), or their representatives.

  • Bank without details: self-identification as a bank/bank employee without identification of bank size.

  • Small or community bank: ≤ 1B assets or self-identification as a small or community bank/bank employee.

  • Midsize bank: > 1B ≤ 50B assets or self-identification as a midsize bank/bank employee.

  • Large bank: > 50B assets or self-identification as a large or systemically important (e.g., GSIB, SIFI) bank/bank employee.

• Trade, industry, or professional association: Association representing the commercial sector or a consortium of firms.

• Professional services provider: Appraisal, accounting, legal, and other firm or individual that provides banks with professional services, or their representatives.

• Cross-sector coalition or quasi-governmental entity: Private association of public entities or coalition of public and private sector entities.

• Government: Federal, state, or local government agency or official.

• Think tank or policy research organization: Organization primarily involved in policy research.

• Consumer, community, or public interest organization: Organization primarily involved in policy advocacy for consumer, community, or public interests.

• Consumer or citizen: Individual representing his/her own non-commercial interests.

Revision categories

• Decrease regulation: Suggestion to rescind rule or decrease rule stringency or scope (e.g., removing requirement, raising a threshold).

• Increase regulation: Suggestion to promulgate rule or increase rule stringency or scope (e.g., adding requirement, lowering threshold).

• Preserve status quo: Suggestion to preserve rule or expression of support for rule as is.

• Procedural: Suggestion related to EGRPRA or rulemaking process.

• Other: Suggestion that is neither pro-regulatory nor deregulatory (e.g., reconciling requirements, clarifying language) or comment that suggests a review with no recommendations for revision.

Evidence categories

• Benefits: Discussion of benefits associated with a current or proposed rule, policy, or issue for either the submitter and/or an identified set of stakeholders (e.g., consumers). For a proposed new regulation or regulatory change, the benefit could be described as the consequences of not regulating.

• Burdens: Discussion of burdens or costs associated with rule, policy, or issue for either the submitter and/or an identified set of stakeholders (e.g., lenders)

  • Operational cost: Costs associated with compliance.

  • Opportunity Cost: Costs associated with forgone opportunities.

  • Relative burden: Comments about the relative burdens faced by institutions based on their size or type (i.e., relative to other financial institutions, not relative to benefit).

• Outdated or unnecessary: Discussion of redundancy, inconsistency, or other issues requiring updating and/or the reasoning that a rule, policy, or issue, as written, is unnecessary, ineffective, or producing unintended consequences.

• Other: Evidence that does not fit into the categories above, such as misalignment with legislative intent or issues of fairness not relative to other financial institutions.

Appendix B: Replicated analysis of EGRPRA comments with and without form letters

Replicated analysis with form letters includes all data in sample (n = 891). Replicated analysis without form letters excludes all form letters except the first occurrence of each form letter (n = 397). Recall that number of comments by submitter category and by issue area are mutually exclusive, but all other categories are not mutually exclusive because comments may include more than one recommendation or type of evidence.

Number of comments by submitter category

	Private interests			Public interests
	Bank or bank employee	Trade, industry, or professional association	Professional services provider	Cross-sector coalition or quasi-governmental entity	Government	Think tank or policy research organization	Consumer, community, or public interest organization	Consumer or citizen
With form letter (n = 819)
2007	541	27	6	9	2	0	3	3
(n = 591)	91.5%	4.6%	1.0%	1.5%	0.3%	0.0%	0.5%	0.5%
2017	22	54	125	10	2	1	11	3
(n = 228)	9.6%	23.7%	54.8%	4.4%	0.9%	0.4%	4.8%	1.3%
Without form letter (n = 397)
2007	176	25	6	5	2	0	3	3
(n = 220)	80.0%	11.4%	2.7%	2.3%	0.9%	0.0%	1.4%	1.4%
2017	22	53	58	9	2	1	11	3
(n = 159)	13.8%	33.3%	36.5%	5.7%	1.3%	0.6%	6.9%	1.9%

Number of comments by issue area

	Review plan; applications and reporting; powers and activities; international operations	Lending (consumer protection)	Deposit accounts/relationships (consumer protection)	AML; safety and soundness; securities	Banking operations; directors, officers, and employees; rules of procedure	Prompt corrective action; Disclosure and reporting of CRA-related agreements
2007 With (n = 591) and without (n = 220) form letters
2007	18	359	108	84	20	2
(n = 591)	3.0%	60.7%	18.3%	14.2%	3.4%	0.3%
2007	18	82	38	63	17	2
(n = 220)	8.2%	37.3%	17.3%	28.6%	7.7%	0.9%

	Applications and reporting; powers and activities; international operations	Banking operations; capital; community reinvestment act	Consumer protection; directors, officers, and employees; money laundering; newly listed rules	Rules of procedure; safety and soundness; securities
2017 With (n = 228) and without (n = 159) form letters
2017	43	21	10	154
(n = 228)	18.9%	9.2%	4.4%	67.5%
2017	43	20	10	86
(n = 159)	27.0%	12.6%	6.3%	54.1%

Number of comments by revisions suggested

	Decrease regulation	Increase regulation	Preserve status quo	Procedural	Other
With form letters (n = 819)
2007	509	16	17	20	467
(n = 591)	86.1%	2.7%	2.9%	3.4%	79.0%
2017	62	18	135	32	61
(n = 228)	27.2%	7.9%	59.2%	14.0%	26.8%
Without form letters (n = 397)
2007	145	13	14	19	102
(n = 220)	65.9%	5.9%	6.4%	8.6%	46.4%
2017	61	18	68	32	61
(n = 159)	38.4%	11.3%	42.8%	20.1%	38.4%

Number of comments by evidence type provided

	Benefits	Burdens	Outdated or unnecessary	Other evidence
Evidence type with form letters (n = 819)
2007	122	485	462	26
(n = 591)	20.6%	82.1%	78.2%	4.4%
2017	171	56	64	19
(n = 228)	75.0%	24.6%	28.1%	8.3%

	Operational cost	Opportunity cost	Relative burden
Disaggregation of burdens with form letters (n = 541)
2007	460	11	315
(n = 485)	94.8%	2.3%	64.9%
2017	40	18	19
(n = 56)	71.4%	32.1%	33.9%

	Benefits	Burdens	Outdated or unnecessary	Other evidence
Evidence type without form letters (n = 397)
2007	36	120	141	25
(n = 220)	16.4%	54.5%	64.1%	11.4%
2017	104	55	63	19
(n = 159)	65.4%	34.6%	39.6%	11.9%

	Operational cost	Opportunity cost	Relative burden
Disaggregation of burdens without form letters (n = 175)
2007	95	11	50
(n = 120)	79.2%	9.2%	41.7%
2017	39	17	18
(n = 55)	70.9%	30.9%	32.7%