Regulatory Impact Analysis for Financial Regulations

Three principles to guide economic analysis of financial regulations.

July 21, 2020

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Abstract

Financial regulators in the United States have come under increased pressure to improve the economic analysis that informs their regulatory decisions. Economic theory and empirical analysis both suggest that economic analysis of financial regulations should be no more difficult than economic analysis of other types of regulations. Financial regulatory agencies can produce useful economic analysis to inform regulatory decisions if they keep three principles in mind: (1) Focus on regulatory impact analysis (RIA), not just benefit-cost analysis (BCA); (2) The analysis is not the decision; and (3) Build institutional capacity to support objective analysis.