Fed Asked to Undertake Comprehensive Study of Financial Services Sector by J.C. Boggs


U.S. Congressman Ed Royce (R-CA), a senior member of the House Financial Services Committee, recently sent a letter to Federal Reserve Governor Dan Tarullo asking the Fed to undertake a comprehensive study of banking sector.

In the January 2 letter, Rep. Royce suggests a broad industrial-organization analysis of the financial services industry could illuminate several relevant topics that policymakers do not yet fully understand, including:

• the costs and benefits stemming from regulatory measures in effect and those being considered;
• industry dynamics which may play a role in financial stability regulation;
• the extent to which scale and scope economies exist in the financial sector and how "big or integrated" financial firms need to be in order to attain such economies;
• whether lower funding costs at certain firms are the result of "scale economies" or result from the belief that a given firm and its liabilities will be backed by the government in times of economic stress.

In his letter to the Fed, Rep. Royce concludes, "Regardless of one's view of the ideal regulatory structure for overseeing the U.S. financial sector, all parties should agree that the regulatory structure should be grounded on data."