Prof. Jayanth R. Varma’s Financial Markets Blog

A blog on financial markets and their regulation

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.

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