Is Financial Regulation Structurally Biased to Favor Deregulation?

This article finds that the financial regulatory agencies operate in an environment where regulatory actions often face legal challenge, but deregulatory actions are rarely challenged, and argues that the growing use of interpretive rules combined with administrative law doctrines that restrict access to legal review create an environment that is structurally biased to favor deregulation.Two examples of deregulatory agency action are explored in detail. The implementation of the 2004 Final Rule governing the provision of eligible liquidity facilities to asset-backed commercial paper conduits is evaluated and found to almost certainly fail a “clearly erroneous” standard of judicial review. The second example reviews Omarova's study of the process by which the “business of banking” was reinterpreted to include trade in derivatives; the method of legal analysis that supported this reinterpretation was rejected by the D.C. Circuit. Both of these actions were implemented using interpretive rules, and in both cases these deregulatory actions have not faced legal challenge.This article argues that the combination of the growing use of interpretive rules and the application of doctrines determining who has standing to challenge the actions of the financial regulatory agencies in court forces agencies to favor deregulatory action over regulatory action. The article proposes (i) that every financial regulatory statute be amended to include a “citizen suit” clause and that courts uphold the right of citizens to sue under such clauses, and (ii) that a division of the Consumer Financial Protection Bureau be created that is dedicated to opposing the policy proposals made by regulated parties to financial regulatory agencies