GOP Eases Back From Fight With SEC

WASHINGTON — Republican lawmakers struck a conciliatory tone Tuesday about steps the Securities and Exchange Commission is taking in an effort to improve its economic analysis of proposed new rules resulting from the Dodd-Frank Act.

The way in which the SEC and other regulators conduct such studies has become a flashpoint for congressional Republicans. Numerous GOP lawmakers have expressed concern that the agencies are not properly assessing the costs associated with the hundreds of new regulations that the financial reform law requires.

Despite the title of a House hearing on Tuesday — "The SEC's Aversion to Cost-Benefit Analysis" — the Republican lawmaker who convened it sounded at least somewhat mollified by a 17-page memo on the subject that SEC issued to its employees last month.

Rep. Patrick McHenry, who used the hearing to question SEC Chairman Mary Schapiro about the new guidance, said that the SEC's memo incorporates many policy suggestions that House Republicans made earlier this year.

"While many questions remain about the implementation of these policies at an agency that has resisted this approach for many years, I am hopeful that the personal attention of Chairman Schapiro to the guidance's implementation will lead to an improved decision-making process at the agency," said McHenry, who chairs the oversight subcommittee that held the hearing.

But McHenry, a North Carolina Republican, also said that he remains concerned that the SEC's internal culture is hostile to rigorous economic analysis of its rules. "I think it's important to understand the cultural problem here that I see," he said.

Meanwhile, Illinois Rep. Mike Quigley, the subcommittee's top Democrat, expressed concern that opponents of financial reform will use challenges to the SEC's process of conducting cost-benefit analyses to derail or delay the implementation of Dodd-Frank.

The SEC's March 16 memo came on the heels of a July 2011 appeals court ruling that found that the SEC did not properly conduct a cost-benefit analysis before finalizing a rule required by Dodd-Frank. It also followed a January 2012 report by the SEC's inspector general, which was also critical of the agency's method of conducting such analyses.

The agency's new guidance calls for economists at the agency to have an earlier and more comprehensive role in the rulemaking process.

"Economists must play a central role in rulemaking — whether in identifying concerns or issues that may justify regulatory action or analyzing the likely economic consequences of competing approaches — and the staff's current guidance emphasizes that significant role," Schapiro said in written testimony.

Schapiro also stated that the SEC expects to add at least 20 additional economists to its rulemaking team over the coming months, and that it asking Congress for more funding to hire another 20 economists in the next fiscal year.

But J.W. Verret, a senior scholar at the Mercatus Center, a free market-oriented think tank at George Mason University, testified that many more economists will still be needed at the SEC.

Verret, who is also a professor at George Mason Law School, called on the agency to freeze attorney hiring until it hires at least 200 more economists, arguing that the SEC lags far behind the Federal Trade Commission and the Commodity Futures Trading Commission in its use of economists.

But another witness, University of Mississippi Law Professor Mercer Bullard, testified that merely hiring more economists is not going to fix the problems at the SEC. "You've got to get the lawyers on board," he said.

Bullard also argued that Schapiro is making significant changes inside the SEC, saying that she will have done more by the end of this year to change the approach to economic analysis than all of her predecessors combined.

McHenry withheld judgment on that verdict, saying, "I would like that to be the case."