Political Economy of Regulation, Final Exam Question

With new financial regulations (potentially, yes, potentially) imminent, today’s question is why Congress is delegating so much of the authority to regulators to craft the actual rules of governance:

Consumer and financial lobbyists alike are marshalling the troops on K Street to impact the decisions regulators make in setting new rules after Congress finished writing the Dodd-Frank Act on Friday. The 2,000-page financial overhaul bill is expected to face a final vote this week, but despite its length, it leaves many specific directives to regulators. Regulators are left with the freedom to decide what kinds of trading are included in the prohibition against banks’ investment of their own money and “how much money banks have to set aside against unexpected losses.”

Now, the first question is, why would Congress delegate so much authority? Is it in deference to regulators’ superior knowledge? Or do you think it has something to do with not taking responsibility? Or do you have another explanation?

The second question has to do with the relationship between industry and regulators. If you believe in the capture theory (and many of you do), what type of explanation would you give for delegation? And, what sort of outcomes might you expect from this round of legislative reform?

Wait, the term is over? What?

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