Delegation and the Regulation of Financial Markets

42 Pages Posted: 10 Jan 2016

See all articles by Thomas Groll

Thomas Groll

Columbia University - School of International and Public Affairs; Institute for Corruption Studies

Sharyn O'Halloran

Columbia University - School of International & Public Affairs

Geraldine McAllister

Columbia University

Date Written: December 15, 2015

Abstract

We explore the determinants of U.S. financial market regulation with a formal model of the policy-making process in which government regulates financial risk at both the firm and systemic levels, and test these predictions with a novel, comprehensive data set of financial regulatory laws enacted since 1950. We find that political factors impact Congress' decision to delegate regulatory authority to executive agencies, which in turn impacts the stringency of financial market regulation. In particular, Congress delegates authority to regulators when: 1) policy preferences between Congress and executive officials become more similar; 2) Firms' investment risks become more uncertain; and 3) Congress' concerns about a bailout are greater. As a result, financial markets are more heavily regulated when firm-specific and systemic risks are uncertain. However, when inter-branch preferences differ or perceived systemic risk is low, Congress may allow risky investments to be made that, ex post, it wished it had regulated.

Keywords: Delegation, Financial Regulation

Suggested Citation

Groll, Thomas and O'Halloran, Sharyn and McAllister, G, Delegation and the Regulation of Financial Markets (December 15, 2015). Available at SSRN: https://ssrn.com/abstract=2712915 or http://dx.doi.org/10.2139/ssrn.2712915

Thomas Groll (Contact Author)

Columbia University - School of International and Public Affairs ( email )

420 West 118th Street
New York, NY 10027
United States
2128510194 (Phone)

HOME PAGE: http://www.columbia.edu/~tg2451

Institute for Corruption Studies

Stevenson Hall 425
Normal, IL 61790-4200
United States

Sharyn O'Halloran

Columbia University - School of International & Public Affairs ( email )

420 West 118th Street
New York, NY 10027
United States
(212) 854-3242 (Phone)
(212) 222-0598 (Fax)

G McAllister

Columbia University ( email )

535 West 116th Street
New York, NY 10027
United States

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