Center for Contract and Economic Organization
Program in the Law and Economics of Capital Markets
It's as predictable as the swallows' return to Capistrano. At the outset of each new Administration, a Presidential Task Force proposes a restructuring of the federal administrative agencies. New developments in rapidly evolving markets, it is argued, require a consolidation of agencies to generate a broader perspective, to create a "level playing field," and to end the possibility of a "race to the bottom" (to the extent that market participants can opt for one regulatory system over another). The proposal draws little overt criticism, but turf-conscious agencies quietly mobilize their constituencies to oppose the reform. The first sign of trouble surfaces when the various congressional oversight committees express their misgivings and signal their reluctance to surrender authority over the affected agencies. Hearings are scheduled and delayed-and delayed. Eventually, by mid-Administration, the White House is too busy pushing its core legislative agenda and/or surviving the inevitable scandal to risk alienating important members of Congress over a "good government" issue with little political sex appeal. As a result, the status quo survives.
Perhaps this scenario sounds too cynical. But each recent Administration has repeated it. The early Clinton administration has paralleled the experience of the early Reagan administration. At the outset of the Reagan administration, an interagency Task Group on Regulation of Financial Services, chaired by then-Vice President George Bush, sought to consolidate federal regulatory authority over financial services firms, both to reduce regulatory overlap and to mediate conflicts then developing between the Securities and Exchange Commission (SEC) and federal banking authorities.1 In the end, no consolidation resulted, and only proposals for redistribution of authority were made.2 Already in the Clinton administration, an ambitious plan to consolidate several federal banking agencies into a proposed Federal Banking Commission has been quietly shelved in the face of active opposition from the Federal Reserve Board.3
To the extent this pattern persists, interagency turf wars will continue, the playing field will remain unlevel, and "races to the bottom" (or wherever) will continue. Is this bad? Not necessarily. Economists describe these same circumstances as exactly those in which a healthy "regulatory competition" flourishes and view such a state of affairs as vastly preferable to the system of "monopolistic" regulation, which in their view would arise from the consolidation of agencies.4
John C. Coffee Jr.,
Competition Versus Consolidation: The Significance of Organizational Structure in Financial and Securities Regulation,
Available at: https://scholarship.law.columbia.edu/faculty_scholarship/1125