United States Finance Profile 2012

Commercial banks, savings and loan associations, credit unions, insurance and finance companies, and other financial institutions account for about one-seventh of the gross national product. The 50 largest commercial banks, many of them international in scope, hold roughly 40 per cent of the banking industry's total deposits. Most of the largest banks are in New York, California, Texas, and Illinois. New York City has long been the nation's principal financial center and home of its principal stock exchanges. Smaller stock exchanges are located in Boston, Philadelphia, Chicago, and San Francisco.

Most financial institutions are regulated by the federal government, some by the states. The Federal Reserve System exercises certain central banking functions.

Technological advances in communications and data processing have permitted financial institutions to expand their role in the economy greatly. For example, the bank credit card—whose widespread use was made possible by computerized billing and collection systems—has replaced the use of cash in many transactions.

United States: Developments in Regulatory Reform

Key features of United States’ regulatory reform

The creation in 1981 of the Office of Information and Regulatory Affairs (OIRA) within the Office of Management and Budget (OMB) was a milestone in the process of regulatory reform in the US, as it followed a period of major expansion in health, safety and environmental regulation. In the late 1960s and early 1970s, numerous new government agencies were set up to protect the American workplace, the environment, highway travellers and consumers. As with most political developments, the significant growth in the amount and kinds of regulation created a counter political development that ultimately led to the creation of the modern US regulatory system.

Legislation, policy and principles

The Administrative Procedure Act (APA) provides the foundation for regulatory transparency and accountability in the United States. The APA requires that agencies go through a notice and comment process open to all members of the public, both foreign and domestic. Agencies must publish proposed rules in the Federal Register and solicit public comment.
Executive Order (E.O.) 12866 of September 30, 1993, “Regulatory Planning and Review,” established basic principles governing Federal rulemaking. These principles call on agencies to demonstrate the need for a proposed action (e.g., a market failure) and its consequences. In deciding whether and how to regulate, E.O. 12866 requires agencies to assess the costs and benefits of available regulatory alternatives (including the alternative of not regulating). Specifically, E.O. 12866 states that, “in choosing among alternative regulatory approaches, agencies should select those approaches that maximize net benefits....” E.O. 12866 further states that, “Each agency shall assess both the costs and the benefits of the intended regulation and, recognizing that some costs and benefits are difficult to quantify, propose or adopt a regulation only upon a reasoned determination that the benefits of the intended regulation justify its costs.”

While OIRA’s current regulatory oversight functions are authorized by Executive Order 12866, it should be noted that every President since at least the early 1970s has established some form of executive oversight of the regulatory process within the Executive Office of the President.

Objectives of regulatory reform

The objectives of effective regulatory reform are to: Ensure that the American people have a regulatory system that protects their health, safety, environment and well-being and improves the performance of the economy without imposing unacceptable or unreasonable costs on society;  Develop regulatory policies that recognize that the private sector and private markets are the best engines for economic growth; Develop regulatory approaches that respect the role of State, local and tribal governments; and Write regulations that are effective, consistent, sensible and understandable.

Mechanisms and institutions to oversee regulatory reform Institutions

Pursuant to Executive Order 12866, the OIRA oversees the regulatory process for the Executive Branch by coordinating interagency review of significant agency regulations. When agencies submit draft regulations for review under Executive Order 12866, OIRA shares these with other agencies so that “[e]ach agency shall avoid regulations and guidance documents that are inconsistent, incompatible, or duplicative with its other regulations and guidance documents or those of other Federal agencies.”9 As the central office that reviews all of the significant regulations of the Federal government, the OMB is in the best position to ensure that the regulatory process flows smoothly, just as it does with its other central review functions pertaining to the US fiscal budget, legislative proposals and programme management.

Awareness and support

OIRA has expanded public disclosure by listing all regulations under review.10 Once a rule has been published, the public can access the OIRA docket which contains, among other things, a copy of the draft rule as originally submitted to OIRA by the agency and a copy of the draft rule once OIRA reviews it. The US has also made strides in making rulemaking more accessible to the public through the advent of e-Rulemaking (www.regulations.gov) and the online publication of the Unified Agenda and Regulatory Plan.

Transparency and predictability

Although the confidential nature of interagency deliberations is necessary to allow the Executive Branch to engage in open and candid policy discussions, OIRA has sought to strike a balance between this legitimate need to protect the deliberative process and the Congress’s and the public’s need for information from the Executive Branch. Recently, OIRA has expanded public disclosure by listing on its website all regulations under review, as well as all meetings held with outside parties on rules under review.

Improving the quality of regulation

Regulatory tools, systems and processes for improving the quality of new regulations
(Flow)

In the past two decades, regulatory analysis has emerged as an integral part of government accountability—a non-partisan tool for understanding the likely effects of regulation. This principled approach to regulation articulated since the time of President Jimmy Carter has withstood the test of time.

Since its creation, OIRA has reviewed the regulatory impact analyses produced by the agencies using economic “best practices”, carefully developed through notice and comment procedures. OMB and other government agencies currently use OMB Circular A-4,12 which was issued in 2003 following a period for public comment and interagency review. OMB issued Circular A-4 to provide agencies with guidance in complying with the requirements for regulatory analysis of economically significant rules as set forth in Executive Order 12866. This Circular advises agencies how to standardise the way that benefits and costs of Federal regulatory actions are measured and reported to ensure consistency and transparency across the Federal government.

Regulatory tools, systems, and processes for improving the quality of existing regulations (Stock)

A major tool that the US has used to improve existing rules is the solicitation of public reform nominations under the Regulatory Right to Know Act (Section 624 of the Treasury and General Government Appropriations Act, 2001, 31 U.S.C. § 1105 note, Pub. L. No. 106-554, 114 Stat. 2763A- 161 - 162). Pursuant to this Act, OMB has initiated three public nomination processes to undertake reform of existing regulations:

In 2001, OMB requested public nominations of rules that should be rescinded or modified; 71 nominations were received from 33 commenters. OMB and the agencies identified 17 actionable reforms.

In 2002, OMB again requested public nominations of reforms of rules and also sought nominations for reform of guidance documents and paperwork requirements. OMB received 316 nominations from more than 1,700 commenters. OMB and the agencies identified 55 highpriority reforms.

In 2004, OMB called for reform nominations on the manufacturing sector, because it continues to be one of the most heavily regulated sectors of the US economy. This call solicited specific suggestions for reforms to regulations, guidance documents or paperwork requirements that would improve manufacturing regulation by reducing unnecessary costs, increasing effectiveness, enhancing competitiveness, reducing uncertainty and increasing flexibility, especially for small businesses. OMB received 189 reform nominations from 41 commenters; OMB identified 76 priority reforms.

Future challenges and lessons learned in promoting regulatory reform

Lessons learnt in promoting regulatory reform and major progress in the past five years

Over the years, the US has learned two conditions are necessary in order to develop regulatory reforms with lasting success: first, Regulatory Impact Analysis (RIAs) must be objective, credible and of the highest quality; and second, the regulatory process that implements the reforms must be perceived as fair and open to all affected parties. Only then can a broad based constituency for economic efficiency and growth flourish. Without that constituency, narrow interests will dominate regulatory politics, fighting over the distribution, not the growth, of resources.

The US government has made strides in improving the accessibility of the rulemaking process to the public through the advent of e-Rulemaking. Over the past few years, e-Rulemaking has transformed public access to the federal government rulemaking process. The website www.regulations.gov has brought government-wide information together, and made it searchable. Users of www.regulations.gov can locate regulations on a particular subject, determine whether the rules are open for public comment, access supporting documents, file comments on proposed rules, and even read comments filed by others. Another e-Rulemaking advancement is the online publication of the Unified Agenda and Regulatory Plan. These semi-annual (Agenda) and annual (Plan) publications provide uniform reporting of data on regulatory and deregulatory actions under development throughout the Federal government.

To help the public identify planned regulations of international interest, starting in fall 2008, the US added an “international flag” to the Unified Agenda and Regulatory Plan. The public can now search both documents for a list of entries with international impacts, and can combine such a search with other data elements, such as rulemaking by agency, whether or not the rule is economically significant, has small business impacts, or other information of interest.

Future challenges

The Obama Administration is committed to an even more open and transparent government that welcomes close participation and consultation from the public. The Director of OMB has been directed to develop a set of recommendations for a new Open Government Directive.13 The OMB Directive will instruct agencies to take specific actions to use new methods of public involvement and collaboration to improve how the government delivers services and implements programmes.

OMB was also directed to develop recommendations for a new Executive Order on Federal regulatory review. Specifically, the recommendations should offer suggestions on the following:

• increasing disclosure and transparency;
• encouraging greater public participation in agency regulatory processes;
• developing the role of cost-benefit analysis in developing regulations;
• identifying methods to ensure that regulatory review does not produce undue delay; and
• identifying the best tools for achieving public goals through the regulatory process.

Commercial Banking Report Q1 2011