Spitzer Commission on Financial Regulation

Last week, Eliot Spitzer, Governor of New York created the New York State Commission to Modernize the Regulation of Financial Services. Among the reasons for setting up the Commission, Spitzer’s order refers to:

• allegations by financial services companies about unnecessary, burdensome and inconsistent regulation,
• allegations by various consumer advocacy groups that regulation does not adequately protect consumers, and
• global competition and the need for world class financial services regulations to remain the global leader in the sector.

The mandate of the Commission is to suggest regulatory changes needed to:

• promote economic innovation and protect consumers,
• promote competition and the growth of the business while effectively protecting both consumers and businesses from unfair or unethical practices, and
• ensuring that regulations do not impose costs higher than any benefits they provide

This mandate appears to me to be well balanced and sound. I like the pro competitive and pro market approach to regulation. As Attorney General of New York, Spitzer earned a reputation for tough enforcement of laws. Tough enforcement makes sense only when the laws themselves are sound as Stigler taught us in his classic paper 35 years ago (Stigler, J. “The optimum enforcement of laws”, Journal of Political Economy, 1970, 526-536). As Governor, Spitzer now has a chance to work on that side of the equation as well.

Frank Partnoy has an article in the Financial Times of June 6, 2007 (“A gamekeeper turns to the poachers”) defending Spitzer’s decision to appoint senior executives from financial services firms on this Commission.

Posted at 3:38 pm IST on Thu, 7 Jun 2007         permanent link

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