Delegation and the Regulation of U.S. Financial Markets
71 Pages Posted: 10 Jan 2016 Last revised: 20 Jan 2021
Date Written: January 19, 2021
We analyze the institutional determinants of U.S. financial market regulation with a generalmodel of the policy-making process in which legislators delegate authority to regulate financialrisk at both the firm and systemic levels. The model explains changes in U.S. financial regulation leading up to the financial crisis. We test the predictions of the general model with a novel, comprehensive data set of financial regulatory laws enacted specifically between 1950 and 2009. The theoretical and empirical analysis finds that economic and political factors impact Congress’ decision to delegate regulatory authority to executive agencies, which in turn impacts the stringency of financial market regulation, and our estimation results indicate that political factors may have been stronger and resulted in inefficiencies.
Keywords: Financial Regulation, Systemic Risk, Delegation, Partisan Conflict
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