SEC Chief Economist Lewis on the Expanded Role of Economists in SEC Rulemaking and “The Guidance”

SEC Chief Economist and Director Craig M. Lewis delivered a speech about economic analysis in support of Commission rulemakings.  Lewis paid particular attention to the role of economists from the Division of Risk, Strategy, and Financial Innovation (“RSFI”), and the recently issued guidance on economic analysis. In his speech, Lewis provided an overview of the major topics within The Guidance (i.e., a document providing a high-level approach to economic analysis, drawing on concepts from various sources, including guidance issued by the Office of Management and Budget, congressional correspondence, etc.), which was circulated to rule-making Divisions and Offices of the Commission.

In Lewis’s perspective, The Guidance reflects a common-sense approach to being thoughtful and transparent about economic analysis, including the potential impacts and trade-offs of the regulatory decisions that the Commission is making. The four basic elements of a robust economic analysis, according to the document, are: (i) identifying the need for the regulatory action; (ii) defining the baseline against which to measure the economic effects of that regulatory action; (iii) identifying alternative regulatory approaches; and (iv) an evaluation of the benefits and costs of the regulatory action and the principal regulatory alternatives, both quantitative and qualitative. Lewis argues that the above principles will provide substantive elements of a robust economic analysis.

Lofchie Comment:  Leaving aside any arguments as to how the SEC might come out on a specific issue, this is the very direction that one so wishes U.S. financial regulation would take: law informed by economics, not indifferent to it (or ignoring it as inconvenient).  I just hope that the Office operates in a manner that allows input and clashing opinions from outside sources.  It’s nice to have some positive regulatory direction.

View speech in full here (links externally to SEC website).