Cost-Benefit Analysis as a Framework for Financial Regulation

Abstract

Should Congress enact a formal cost-benefit analysis requirement for financial regulation? I survey the nature of costs and benefits of financial regulation, both “macro” regulation designed to stop crises and “micro” regulation of products, markets, and institutions. Although I find that financial regulation often grossly violates cost-benefit tests, the nature of its costs and benefits means that financial regulation is not likely to be much improved by adding a formalized cost-benefit procedure.

Keywords: cost-benefit, benefit-cost, financial regulation

JEL Classification: G28, G38, D61