The Sausage Making of Financial Reform, II

In my last post, I was discussing the public comments on the Volcker rule.  As noted, 7316 of those comments are a virtually identical form letter.  I outline the possible implications of that in the paper.  But the remaining 515 comments submitted by private individuals that were not traceable to a form letter also yield a useful comparison to letters from other groups.  

Table 2 breaks down the comments by group and word count.  Figure 2 displays this information graphically, showing the distribution of word count by: private individual not using the PIG form (in red), private individuals using the form (in blue), and all others (in green). (You can click on any image to enlarge).

There are three spikes in the data, at less than 50 words, at 200-249 words, and at 250-299 words (note the larger sizes of the two bins at far right, representing comments with 350-799 words and those with 800 words or more).  The spikes at 200-249 words and 250-299 words represent the PIG form letter and its slight variations (in it’s original form that letter is 244 words.) The spike at comments of less than 50 words represents only letters from private individuals. 

The shortest comment -- only a single word, “regulate” -- was submitted by a private individual.   The longest comment, received from SIFMA (the Securities Industry and Financial Markets Association) measures 19,500 words.   The industry and trade group comments are, as a general rule, lengthy, contain cogent arguments on behalf of a generally narrow interpretation of the Volcker Rule’s scope of prohibited activity, advance detailed legal arguments relying on numerous statutes and cases, reference the Dodd-Frank legislative history, and often contain thorough empirical data. They are meticulously argued and carefully drafted. 

In contrast, comments from the general public tend to be short -- the average word count, excluding the PIG form letters, is only 86, and roughly half of the comments, again excluding those using the PIG form letter, are less than 50 words.  In addition, these public comments by and large lack specific suggestions or recommendations for interpreting and implementing the Volcker Rule, generally urge that the rule be “enforced” or “adopted,” contain many grammatical, punctuation, and typographical errors, and express extreme anger at the banks and, often, at the political system as well.

The meeting logs also give some insight into the work of Dodd-Frank statutory interpretation and implementation that goes on behind closed doors.  I break down those logs in great detail in the paper, but will give a brief overview here. 

Whereas financial industry representatives met with federal agencies on the Volcker Rule a total of 265 times, meetings with entities or groups that might reasonably be expected to act as a counterweight to industry representatives in terms of the information provided and the types of interpretations pressed numbered only 18. This is roughly the same number of times that a single financial institution -- JP Morgan Chase – met with federal agencies on Volcker Rule interpretation and implementation.  As shown by Table 8 and Figure 3, financial institutions, financial industry trade groups, and law firms representing such institutions and trade groups collectively accounted for 93.64% of all federal agency Volcker rule meetings, whereas public interest, labor, research, and advocacy groups and other persons and organizations accounted for only 6.36%.  Moreover, the quality of meetings with financial institution representatives exceeds that of other agency contacts on several measures.

I’ll be back again to talk about some of the implications of this research, and to relate it to the papers and posts of our other forum participants.  

 

Comments

[Erik Gerding]

One thing to think about, Kim, is the asymetry created by administrative law. Ad law tends to make legal challenges easier for those commentators who are looking to challenge a rule. After all the traditional concern of ad law is the classical liberal one of constraining political power. But modern financial reform also worries about regulatory inaction.

What does that mean for your study? Well you would predict that opponents of the Volcker Rule will make more substantive points. Proponents will focus more on "political theater" designed to embarass regulators into acting.

[Kim Krawiec]

Hi Erik -- I definitely see the "political theater" point in terms of the comment letters. Having looked at some of the other relevant work (all of it post rule proposal that I've seen so far) that seems consistent both with what I'm seeing and what others have observed. The presumably more meaningful agency contacts are a different story, of course -- less theater and almost completely dominated by industry. But I'm not sure the theater bit only occurs when the public or some relevant general interest group favors the regulation in question. I seem to remember seeing arguments (and maybe some evidence) that public opposition to a rule could be harnessed to just occupy all of the regulator's time through, essentially, junk mail that would take their time away from regulating.