	Introduction

Congress has granted many federal agencies the authority to issue regulations that carry the force of law. An important and commonly performed type of regulatory analysis is a cost-benefit analysis (CBA)—a systematic examination, estimation, and comparison of the economic costs and benefits resulting from the implementation of a new rule. Agencies are given this independence in part so that experts writing technical rules have some degree of insulation from political considerations. However, others argue that financial regulators should be subject to greater requirements to increase accountability. In response, a number of bills in recent Congresses have proposed increased requirements. This report examines issues related to financial regulators and CBAs, including potential difficulties facing such regulators and methods available to them when preforming a CBA; the analytical requirements the agencies currently face; and the arguments for and against increasing requirements on financial regulators. This report also briefly describes several examples of proposed legislation that would change the requirements facing financial regulators. This raises questions about the appropriate scope, level of detail, and degree of quantification that should be required of analysis performed in the rulemaking process. Finally, requiring uncertain and contestable CBAs may allow self-interested parties to impede socially beneficial regulation by challenging agency analysis in court and offering their own subjective analysis. 12866 requires covered agencies—that is, agencies other than independent regulatory agencies, which includes most of the financial regulators—to submit "significant" rules to the Office of Management and Budget's Office of Information and Regulatory Affairs (OIRA) for review, along with an initial cost and benefit assessment. For rules that are determined to be significant because their annual economic effect is likely to exceed a $100 million threshold, covered agencies are required to conduct a more in-depth CBA. The document provides some specific information that agencies should generally include in their analyses, such as the statutory or judicial directives that authorize the action; the underlying problem or market failure prompting the regulation; consideration of a "reasonable number" of regulatory alternatives; and both a cost-benefit analysis and a cost-effectiveness analysis. 12866 and OMB Circular A-4. However, the requirements facing financial regulators are not trivial, and financial regulations have been vacated following judicial review when the court found the CBA performed during rulemaking to be deficient. Cross-Cutting Analytical Requirements

The following statutes contain analytical requirements that apply to all federal regulatory agencies, including the financial regulators. Paperwork Reduction Act

The Paperwork Reduction Act (PRA) of 1980 ( P.L. Agency-Specific Requirements for CBA

Certain individual agencies—the Securities and Exchange Commission (SEC), the Consumer Financial Protection Bureau (CFPB), and the Commodity Futures Trading Commission (CFTC)—are statutorily required to perform certain analysis in rulemaking specific to the agency. The National Securities Market Improvement Act ( P.L. The Commodity Exchange Act (P.L. Some observers argue that financial regulators should maintain a relatively high degree of discretion over the role and form of CBAs in the rule-writing process. They assert
certain characteristics of the finance industry—discussed in detail below—necessitate CBAs with more easily contestable assumptions and uncertain results than in other industries; and performing highly contestable and uncertain CBAs does not discipline agencies, but instead may provide an opportunity for interested parties to impede socially beneficial regulation. Others argue that financial regulators should be subject to more stringent requirements than is currently the case. They assert
performing CBAs for regulation of the finance industry does not pose greater difficulties than for regulation of other industries, and imposing requirements on financial regulators would spur them to overcome methodological and other challenges; and financial CBAs—despite contestable and uncertain results—would be the best tool for ensuring that regulation is implemented responsibly with due consideration of consequences. Arguments That Financial Regulator Discretion is Appropriate

Some observers assert that performing CBAs for financial regulation is different from other types of regulation. They claim financial regulation CBAs are more uncertain and contestable, and this limits the effectiveness of CBA requirements. Instead of increasing accountability and regulatory efficiency, they argue CBAs could disguise agency judgement as objective, scientific measurement. Proponents further assert that financial regulation CBA seems to face such difficult challenges because it has been exempt from certain requirements and oversight. In these ways, they argue uncertain CBAs can play an important role in showing when a proposed regulation is hard to justify or easy to defend.
Cost-benefit analysis (CBA) in the federal rulemaking process is the systematic examination, estimation, and comparison of the potential economic costs and benefits resulting from the promulgation of a new rule. Agencies with rulemaking authority implement regulations that carry the force of law. While this system allows technical rules to be designed by experts that are to some degree insulated from political considerations, it also results in rules being implemented by executive branch staff that arguably are not directly accountable to the electorate.
One method for Congress to increase accountability is to require the regulators to conduct analyses of likely effects of proposed regulations. In this way, an agency demonstrates that it gave reasoned consideration to the effects of the proposed rules. CBA is an important type of such analysis, as comparing costs and benefits can be useful in determining whether or not a regulation is beneficial. However, performing CBA can be a difficult and time-consuming process, and it produces uncertain results because it involves making assumptions about future outcomes. Some observers argue that financial regulation CBA is particularly challenging. This raises questions about what parameters and level of detail agencies should be required to include in their CBA.
While most federal regulatory agencies are directed by Executive Order 12866 and Office of Management and Budget Circular A-4 in their performance of CBAs, financial regulators are generally not subject to these directives. Financial regulators are statutorily required to perform certain CBA: requirements such as the Paperwork Reduction Act (P.L. 104-13) and Regulatory Flexibility Act (P.L. 96-354) generally apply to all financial regulators; financial regulators that regulate the banking system are subject to requirements set out in the Riegle Community Development and Regulatory Improvement Act (P.L. 103-325); and agencies such as the Securities and Exchange Commission (SEC), the Consumer Financial Protection Bureau (CFPB,) and the Commodities Futures Trading Commission (CFTC) face requirements specific to them. However, the requirements facing individual financial regulators generally allow them to perform analysis under less specific instruction than is contained in the requirements that are cited above and apply to nonindependent regulatory agencies.
Whether the requirements facing financial regulators should allow for this discretion is a contentious issue. Some observers assert that financial regulators should maintain a relatively high degree of discretion over when and how to conduct CBA. They argue that characteristics of the financial industry and regulation make CBAs in this area especially uncertain and contestable, and assert that financial regulation effects depend entirely on human and market reactions; finance plays a central role in a huge, complex economic system; and financial regulations' effects are more likely (relative to other types of regulation) to include transfers between groups not well accounted for in net measurements. They further argue that requisite CBAs that are uncertain and contestable are more likely to disguise agency discretion as objective fact and provide the opportunity for interested parties to challenge socially beneficial regulation with their own subjective, self-interested analyses.
Other observers assert that financial regulators should face more stringent requirements than they currently do. They refute claims that financial CBAs are necessarily more uncertain or contestable than in other areas. Also, they argue that tools and techniques would be developed to overcome challenges if CBAs were required. They further argue that even uncertain and contestable CBAs are effective in disciplining agencies because they create transparency of the agency's evaluations of proposed regulations and allow for outside assessment of that evaluation.
Recent Congresses have been active on this issue, and the House has passed several bills in the 115th Congress that would increase CBA requirements. Recent proposals would affect either all regulators including financial regulators, financial regulators as a group, or individual financial regulators.