Overlapping Legal Rules in Financial Regulation and the Administrative State

Reforms which seek to overhaul the Dodd-Frank Act have begun to gain support within the Trump Administration and Congress. The leading proposals go beyond technical matters and reflect a wholesale critique: financial regulation has become too burdensome, too complex, and grants too much discretion to regulators. This article argues that what is really at stake in these debates is the distinct issue of “regulatory overlap”—meaning the joint use of multiple legal rules to address a common market failure. It begins by developing a general framework for analyzing overlapping legal rules of all kinds. That framework is then applied in case studies of the two cornerstones of financial regulation: capital adequacy requirements and resolution authority procedures. The most direct contribution of this article is to substantive issues in financial regulation. Each case study yields insights about particular portions of the Dodd-Frank Act that pending reforms attempt to eliminate, as well as the big picture problems of systemic risk and banks that are Too Big to Fail. On a more theoretical level, it also situates the concept of regulatory overlap within the law-and-economics literature on the optimal design of legal rules, where it is otherwise conspicuously absent. Lastly, the article shows how an analysis of overlapping rules in finance carries lessons for the regulatory process as a whole. It thereby adds to scholarship on administrative law, especially to research in that area that deals with a related set of problems concerning the structure of agency jurisdiction, regulatory cost-benefit analysis, and the role of uncertainty in the policymaking environment