CFTC Office of the Inspector General - Dodd-Frank Cost-benefit Analyses - April 15, 2011
At the request of two Republican lawmakers, Frank Lucas of Oklahoma and Michael Conaway of Texas, the Commodity Futures Trading Commission's Office of the Inspector General conducted a cost-benefit analysis of four of the commission's rule proposals related to the Dodd-Frank Act.
The Dodd-Frank Act originally gave regulators a one-year timeline with which to create and implement rule changes mandated by the act. In order to complete the rulemaking process within the mandated timeline, the commission was required to "emphasize speed over deliberation."
As the rulemaking process progressed through late 2010 and early 2011, CFTC commissioners began questioning whether the commission was properly assessing the costs versus the benefits of proposed rules. At its February 24, 2011 open meeting, Commissioner Jill Sommers requested such a cost-benefit framework, "we owe the American public more than the absolute minimum. As we add layer upon layer of rules, regulations, restrictions and new duties, we should be attempting to quantify the costs of what we are proposing."
This 32 page report, officially called "An Investigation Regarding Cost-Benefit Analyses Performed by the Commodity Futures Trading Commission in Connection with Rulemakings Undertaken Pursuant to the Dodd-Frank Act," and is a cost-benefit analysis of the Dodd-Frank Act. The report, commissioned by Representative Frank Lucas, chairman of the House Committee on Agriculture and Representative K. Michael Conaway, chairman of the Subcommittee on General Farm Commodities and Risk, examined four rule filings by the Commodity Futures Trading Commission.
The Inspector General's report investigated the formulation of cost benefit analyses for four rule proposals:
- Further Defining "Swap Dealer","Security-based Swap Dealer," "Major Swap Participant","Major Security-based Swap Participant", "Eligible Contract Participant"
- Confirmation, Portfolio Reconciliation, Compression Requirements for Swap Dealers and Major Swap Participants,
- Core Principles and Other Requirements for Designated Contract Markets, and
- Regulations Establishing and Governing the Duties of Swap Dealers and Major Swap Participants.
This report concludes that the CFTC's Office of General Counsel and the Office of Chief Economist adopted a "one-size fits all" approach to section 15(a) compliance without giving significant regard to the deliberations addressing idiosyncratic cost and benefit issues that were shaping each rule, and were often addressed in the preamble."
The report also points out that the CFTC's cost-benefit analysis "appeared to rely heavily on an historic (and somewhat stripped down) analytical approach.
Further, the report's summary also stated that "it is clear that the Commission staff viewed section 15(a) compliance to constitute a legal issue more than an economic one, and the views of the Office of General Counsel therefore trumped those expressed by the Office of Chief Economist, at least for the four rules we reviewed. We do not believe this approach enhanced the economic analysis performed under section 15(a) for the four rules."
The entire report can be found below.
- CFTC Inspector General: Agency Taking a Bare Minimum Approach to Cost-Benefit Analysis of Dodd-Frank. House Committee on Agriculture. Retrieved on April 19, 2011.
- CFTC rushed rules, needs more cost-benefit review-IG. Reuters. Retrieved on April 19, 2011.
- Open Meeting on Twelfth Series of Proposed Rules under the Dodd-Frank Act. CFTC. Retrieved on February 26, 2011.