How lobbyists make government regulations more burdensome

November 9, 2011

One of the chief complaints you hear about Obama’s Wall Street reform law is that it imposes hugely complex, burdensome regulations on businesses. But why did that happen? It’s partly because industry lobbyists have pushed so hard to carve out exemptions in the law. That’s what happened with the Volcker Rule, which intends to prevent banks from trading for their own benefit, rather than their customers’. The rule originally started out a 10-page provision that has ballooned to nearly 300 pages with scores of exemptions in place, as some supporters of the reform pointed out at an event on Wednesday.


(SOURCE: AP)

Problem is, “it’s much easier for regulators to write complex rules than simple rules,” Matthew Richardson, a financial economics professor at New York University, said at the gathering, sponsored by Americans for Financial Reform. A simpler rule would likely give regulators much broader authority, leaving them to judge whether a firm was violating the spirit of the rule. Richardson then referenced a comment that Volcker had made back in 2010, when Dodd-Frank was being deliberated: excessive risk is “like pornography: you know it when you see it.”

But empowering regulators, of course, isn’t what most critics of Dodd-Frank want either. So industry players are basically sticking with the lobbying-for-exemptions approach. In some ways, it works both ways for them: they have a chance of getting a carve-out to avoid regulation. And by making the rule more complex, that carve-out also strengthens the case of those who complain that Dodd-Frank is too onerous and are fighting to repeal it altogether.

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