Note to conference participants: apologies for the super preliminary nature of the draft. Hopefully the data will speak for itself, but as you can see we need and welcome your feedback as we develop this paper. Best, Kim
Pointless Pluralism? An Empirical Study of Volcker Rulemaking By Kimberly D Krawiec & Guangya Liu ∗
I. INTRODUCTION Scholars have long debated the virtues and shortcomings of the administrative state. Critics, for example, contend that regulation is undemocratic, favors special interests, and is inefficient. Defenders, in contrast, argue that legislative governance not only suffers from these same defects, but that administrative rulemaking actually alleviates, rather than exacerbates, problems of political entrenchment and special interest capture.1 Still other scholars accept the regulatory state as a fact of modern day life, asking not whether administrative rulemaking is inferior to other forms of lawmaking, but how we can ensure that administrative governance furthers the egalitarian and efficiency aims of the democratic state.2 The central question for these students of regulation is thus: under what conditions will administrative bodies deliver public-­‐interested regulation, as opposed to regulation that serves special interests? And how can it do so most efficiently? Despite the centrality of these questions to both the political legitimacy and efficiency of the administrative state, there has been surprisingly little empirical study of the precise mechanisms by which administrative rules are made. This article joins the small but growing body of research seeking to shed light on that process, employing an important piece of financial reform as a case study – the Volcker Rule. [more] Kathrine Robinson Everett Professor of Law, School of Law, Duke University; Empirical Research Analyst and Lecturing Fellow, School of Law, Duke University. 1 See generally, for example, Steven P. Croley, Regulation and Public Interests (Princeton Univ. Press, 2008) (discussing this debate), Jody Freeman, Collaborative Governance in the Administrative State, 45 UCLA L. Rev. 1 (1997) (same). 2 Croley. ∗
II.
STUDYING THE VOLCKER RULE A. Background The Dodd–Frank Wall Street Reform and Consumer Protection Act (“Dodd–
Frank”)3 is widely recognized as the most important piece of financial reform since the great depression and one of the most important pieces of legislation to emerge from the Obama administration.4 Of particular note is section 619 of Dodd–Frank, popularly known as the “Volcker Rule.”5 Subject to important exceptions, the Volcker Rule prohibits “banking entities” (a defined term) from engaging in proprietary trading and from acquiring or retaining any equity, partnership, or other ownership interest in or sponsoring a hedge fund or a private equity fund. Although systemically important nonbanks may continue to engage in these activities, they must carry additional capital and comply with other restrictions in order to do so, rendering the rule of interest to many large nonbank entities as well.6 Both parts of the Volcker rule—the ban on proprietary trading and the restrictions on fund investment and sponsorship—are subject to substantial ambiguities that require agency definition and rulemaking. For example, which activities qualify as proprietary trading is unclear from the statutory language, and more ambiguity is added by the nine exceptions to the ban on proprietary trading explicitly contained in the statute. Of particular importance are the exceptions for transactions in connection with underwriting or market-­‐making activities, risk-­‐
mitigating hedging activities, and transactions on behalf of customers. Each of these is a potentially vast exception, with the potential to permit much trading activity previously undertaken under the rubric of proprietary trading. Resolving these uncertainties and implementing workable and enforceable definitions of permitted and prohibited activity falls to the five federal agencies 3 Pub. L. No. 111-­‐203, 124 Stat. 1376 (2010) (to be codified in scattered sections of the U.S. Code). 4 David Zaring, Dodd-­Frank’s Novel Internationalism (draft). 5 12 U.S.C. § 1854 (2012). 6 Id. § 1851(a)(2). charged with Volcker Rule implementation, insuring that battles over Volcker rule coverage that began in Congress would carry through to the rulemaking phase.7 The Volcker rule requires serious changes to affected firms’ compliance regime, organization, business model, and profit sources, and the lobbying surrounding the rule has extended from the initial congressional deliberations to the present day. Many, including Paul Volcker himself, have criticized perceived industry concessions, including most recently a delay until 2017 of the date by which banks must comply with certain portions of the rule.8 Said Volcker: It is striking that the world’s leading investment bankers, noted for their cleverness and agility in advising clients on how to restructure companies and even industries however complicated, apparently can’t manage the orderly reorganization of their own activities in more than five years. . . Or, do I understand that lobbying is eternal, and by 2017 or beyond, the expectation can be fostered that the law itself can be changed?9 All of these factors make the Volcker rule an excellent case study. It is both ambiguous and important, insuring opportunity and motive for agency-­‐level lobbying during the rulemaking phase. It is also one of the rare pieces of financial reform legislation to enjoy widespread public salience, making it as likely a target as any for private citizen and public interest group engagement.10 All of which leads to the question: in the most important piece of financial reform in a generation, who participated in the rulemaking process and how? We analyzed that question using a dataset of comment letters and logged agency contacts during the period from October 11, 2011, the date of the Notice of Proposed Rulemaking (or “NPRM”), through December 10, 2013, the date on which 7 For an analysis of Volcker rule lobbying from inception to the Notice of Proposed Rulemaking, see Kimberly D Krawiec, “Don’t Screw Joe The Plummer:” The Sausage Making of Financial Reform, 55 AZ. L. REV. 53 (2013). 8 Peter Eavis, Fed’s Delay of Parts of Volcker Rule Is Another Victory for Banks, THE N.Y. TIMES DEALBOOK, (Dec. 19, 2014) 9 Id. 10 Krawiec, supra note (discussing the public salience of the Volcker rule, as compared to other rulemakings, and as compared to other financial regulations). the final rule was issued.11 To briefly review the Volcker Rule timeline, on October 11, 2011, the OCC, Federal Reserve, FDIC, and SEC issued an NPRM (hereinafter the “Joint Rule”) requesting comments on proposed rules to implement the Volcker legislation prior to January 13, 2012. That deadline was later extended to February 13, 2012. The CFTC, by a vote of 3–2, adopted the entire text of the Joint Rule in an NPRM dated February 14, 2012, requesting comments prior to April 16, 2012. Comments on the Volcker Rule were collected in a single OCC docket on Regulations.gov.12 Each agency, as well as the Treasury Department, also maintained separate logs documenting meetings set up for the purpose of discussing the Volcker Rule. Our dataset thus includes comments submitted to the OCC docket from Oct. 11, 2011, through July 24, 2012, several months after the comment closing date. [Note to conference participants: we’d like your advice here. Comments continued to come in after this date, but we are unsure how they were treated by the OCC. We feel they should be included, but are not sure how to proceed.] We also analyzed all logged contacts with the OCC, CFTC, Federal Reserve, FDIC, SEC, and Treasury Department regarding the Volcker rule from Oct. 11, 2011, to Dec. 10, 2013. [Note to conference participants: our data do not yet quite reach Dec. 10, but we’re nearly there and do not expect it to materially change our results or conclusions] We note that the agencies continued to meet with interested parties and to receive comment letters after the effective date of the Volcker Rule. Although the comment letters taper off shortly after the comment closing date, meetings continue to the present day as regulated entities and other interested parties continue to debate implementation issues, including required compliance dates. 11 The period from presidential signing through the NPRM is analyzed in Krawiec, supra note. 12 See, Volcker Rule -­‐ Prohibition on Proprietary Trading and Certain Relationships with Hedge Funds and Private Equity Funds, Docket ID: OCC-­‐2011-­‐0014 (available at, http://www.regulations.gov/#!docketBrowser;rpp=25;po=0;D=OCC-­‐2011-­‐
0014). B. Processes Versus Outcomes There are a number of means by which to examine the extent to which the regulatory process delivers public interested regulation. First, and most obviously, one might analyze the substance of regulation in an attempt to judge which parties gain and lose from the regulation and by how much. This method has many problems, however. Most obviously, it is often quite difficult to judge the substantive effects of regulation with any certainty. This is especially true with complex and still-­‐developing regulation, such as the Volcker Rule, whose full effects will not be known for many years to come. An alternative approach would analyze the effects of interest group influence by identifying changes across various rule stages – for example, between the proposed rule and the final rule – and comparing those changes to interest group participation in the rulemaking process. (Yackee, Yackee and Yackee.) As discussed in part IV, some researchers have followed that approach, with interesting results. We believe, however, that it is not well suited to a rule as massive and complex as the Volcker rule. As proposed, the Volcker rule numbered 127 pages in the Federal Register and contained 383 questions. The final rule numbered 268 pages in the Federal Register. As discussed in Part VA below, the comment letters were similarly massive. We ultimately determined that the Volcker Rule proved too unwieldy for this type of analysis. In any event, we are careful to note that our approach studies participation in the rulemaking process, providing insight into the efficiency of that process as well as whether the conditions appear ripe for public interested regulation, as detailed in the various theories of regulation discussed in Part III. It is not, however, designed to determine whether the resulting rules are actually public interested, nor do we track the extent to which changes to the final rule respond to requests in the comment letters. Finally, we note that we study not only a single rule, but a highly controversial and salient one. As such, we do not expect these results to be generalizable to the vast majority of rulemakings. We believe this to be a virtue rather than a fault, however. First, as is evident from the literature review in Part IV, most studies of the rulemaking process do not consider financial regulation. This is unfortunate, as it is unclear whether studies of rulemaking by other agencies are generalizable to financial rulemaking, which is complex, and whose asserted public benefits (financial stability, for example) are often amorphous and of traditionally low salience to the general public. The Volcker rule, however, generated substantial interest from the general public from its inception, due primarily to public outrage over the bank bailouts of 2008-­‐2009, and the accompanying great recession.13 In short, if there were ever a piece of financial regulation about which diffuse general interests might be motivated to participate, this is it. In our view, the Volcker Rule may well represent the best case scenario for advocates of pluralist, public interest, and administrative process theories, among others. At the same time, the Volcker rule presented financial institutions and other market participants with huge potential compliance and operational costs – by some estimates, as much as $4.3 billion dollars.14 This does not include any potential costs to investors stemming from a loss of market liquidity – a hotly contested issue, which one study estimated at $315 billion.15 As a result, concentrated interests, including but not limited to banking entities, could be expected to turn out in full force as well. A final advantage of our dataset over many prior ones is that, thanks to Obama Administration transparency initiatives that are specific to Dodd-­‐Frank, it includes meeting logs of all agencies charged with Volcker Rule implementation, plus the Treasury Department. As will be seen in Part IV, many prior studies were able to measure participation only by reference to comment letters. As we show in Part V, however, at least with respect to the Volcker rule, the meetings logs paint a 13 See Krawiec supra note (discussing this). 14 Douwe Miedema, U.S. Regulator Estimates Volcker Rule’s Cost For Banks, Reuters (March 20, 2014). 15 Shahien Nasiripour, Volcker Rule May Cost Investors $315 Billion, Financial Times (Jan. 2, 2012). very different picture of participation than would be gleaned from comment letters alone. III. THEORIES OF RULEMAKING A. The Theories While a full treatment of theories of rulemaking is beyond the scope of this paper, we provide a brief summary of major schools of thought here, along with the empirical predictions that each theory would generate. Later, we discuss the insights that our data provide with respect to these theories. i.
Public Choice Public choice theory is critical of administrative regulation (and frequently of government more generally). According to its adherents, the market for regulation works to the benefit of narrow, “special” interests, who have the most to gain (or lose) with any given regulatory outcome. As a substantive matter, public choice theory predicts that regulations providing diffuse benefits to an organized citizenry at the expense of organized special interests should be, at best, rare. Public choice theory makes procedural predications as well. According to the public choice account, participation in the rulemaking process should be limited to a relatively small number of special interest groups – one should not see an array of competing interests, or robust interest group competition, as predicted by pluralist theories of regulatory decisionmaking. Furthermore, representatives of diffuse interests, such as public interest groups and private citizens, should not be prominent participants in the rulemaking process.16 ii.
Pluralist Theories According to pluralist theories of regulation, the presence of competing interest groups with divergent interests prevents capture by any one side. More 16 Croley at 23. iii. Public Interest Theory Public interest theory contends that regulators will at times deliver public interested regulation because it comports with their own preferences. Under some versions of the theory this is explained by the fact that regulators have other-­‐
regarding goals. As a result, regulation that benefits the interests of a diffuse citizenry is to be expected because it satisfies regulators’ motivations and ideologies. Under other versions, regulators support general interest outcomes, particularly on “hot button” issues, in order to garner the political support and trust that comes with aligning themselves with citizen preferences on those issues where the citizenry is likely to be paying attention. In so doing, they may lull the public into believing that regulator interests are similarly aligned with theirs in those cases where they are not motivated to pay attention.17 Under this version of the public interest theory, then, issues with high public salience are more likely to be resolved in the public interest. iv. Civic Republicanism Under the civic republican account, the parties to regulatory decisionmaking do not enter the rulemaking arena with fully formed policy preferences. Instead, the rulemaking process is primarily about fostering dialogue and deliberation among interested participants. The job of the regulator is to find consensus and implement it.18 Civic republicans call for policies that encourage and facilitate greater participation in regulatory decisionmaking and for greater deliberation among participants, including through public hearings, citizen groups, and the like.19 The civic republican account has been criticized as being too vague, both in its failure to 17 Levine and Forrence, Regulatory Capture, Public Interest at 186. 18 Seidenfeld, A Civic Republican Justification, 1554. 19 See, e.g., Reich, Public Deliberation at 1635-­‐40; Gerald Frug, Administrative Democracy at 529-­‐31. clearly specify the theories and motivations that lead to participation in the rulemaking process, and for its inability to yield testable hypotheses. v. Administrative Process Steven Croley rejects these competing theories of regulatory governance in favor of what he terms an “administrative process” theory of regulation. Croley, adopting a page from public interest theory, argues first that regulators are inclined to produce public interested regulation, at least under some conditions. Moreover, he contends that the Administrative Procedure Act renders them uniquely situated to do so. An important part of Croley’s theory is that the administrative process serves to level the playing field between diffuse interests and well-­‐organized special interests that have an inherent advantage with the legislature. In addition, Croley contends that the regulatory process yields valuable information to regulatory decision makers, enabling them to better assess the costs and benefits of various regulatory outcomes. If, for example, agencies were rendered wholly dependent on information supplied by only one type of interest group – that is, they are “informationally captured” -­‐-­‐ then we would expect to see regulations that favor that group. (Contrary to findings of Wagner) Croley argues, however, that the administrative process is designed to avoid this – instead, that process provides opportunities for many different parties to supply regulators with a variety of facts, information, and arguments, thus guarding against informational capture. This, according to Croley, implies that regulators may be even handed, even when one type of interest group outspends or outnumbers the others. IV.
The Evidence [Literature review here: major works include the Yackee papers, Wendy Wagner’s studies, John DeFig, and Cary Coglianese’s work] With these theories and evidence in mind, we now turn to the Volcker rule. . . . V. RULEMAKING IS LESS SUSCEPTIBLE TO CAPTURE WHEN PARTICIPATION IS PLURALISTIC Formally, the notice and comment process is open to all – in other words, by formal design the rulemaking process tends much more toward pluralist accounts of regulation than public choice ones. But the fact that anyone can participate in rule making does not tell us who does participate. Recall that public choice theory predicts that special interests should dominate the rulemaking process. Furthermore, there should be limited participation by representatives of diffuse interests, and one should not see robust interest group competition A. Comment Letters As demonstrated by Table 1 and Figure 1A, contrary to the predictions of public choice theory, the Volcker rule generated an unusual level of broad participation from a variety of interested parties.20 Participants included affected industry members, industry trade groups, and their representatives, as predicted by public choice accounts. However, there was also substantial comment letter participation by private individuals, public interest groups, academics, foreign and domestic government entities and agencies, and members of Congress, as predicted by more pluralist theories. Indeed, if we look only at the volume of comments, letters from private individuals far outnumber participation by any other group, representing 98% of total letters received (n=18,109). As shown in Table 1 and Figure 1B, however, a pure volume analysis is misleading – of the 18,454 letters received, only 385 (or just over 2%) were unique, as opposed to form, letters. Although individuals were the most frequent users of form letters, submitting three different varieties totaling 18,039 comments, we also identified the use of form letters by affected industry members, specifically insurance companies and venture capital firms. 20 Reference other studies showing average participation levels. Looking only at unique comment letters, although industry players dominate, private individuals and congressional members comments are nearly as numerous. Moreover, public interest groups, academics, foreign and state governments, and others also provided unique comment letters. We conclude that a simple volume analysis of Volcker Rule comments paint a picture of the regulatory process at odds with the pure public choice account. In contrast to the public choice account, which predicts limited activity from representatives of diffuse general interests, a lack of public participation, and limited interest group competition, we find the presence of diffuse general interests, including public interest groups, academics, and members of the general public. We also find the presence of numerous special interests of various types, as well as congressional and other government participants, suggesting possible interest group competition. B. Meeting Logs Unlike most studies of participation in the rulemaking process, which rely only on comment letter activity, transparency efforts at the five regulatory agencies charged with Volcker rule implementation gave us access to meeting logs as well. These meeting logs paint a very different picture of Volcker rule participation than do the comment letters. During the period between Oct. 11, 2011, the date of the Joint Rule NPRM, and December 10, 2013, the date of final rule issuance, there were 726 meetings with federal agencies to discuss the Volcker rule, as shown in Table 2. Of these, as shown in Figure 2, the vast majority of meetings were with financial institutions and their representatives (law and consulting firms and industry trade groups), followed by members of other affected industries, such as asset management and insurance companies, and their trade associations, law, and consulting firms. Although nonindustry voices were represented, they were far less numerous, both as compared to industry voices and as compared to their representation in the comment letter analysis discussed in Part B, above. Roughly 9% of meetings were claimed by public interest groups, less than 2% by academics, and about 4% by foreign (3.2%) and domestic (.4%) government entities and members of congress or their staff (.4%). As compared to the comment letters, therefore, agency meeting logs paint a far less pluralistic vision of the regulatory process. C. Defining Pluralism Although a variety of entities and individuals participated in Volcker rulemaking, especially through the use of comment letters, it is difficult without more information to know whether this represents the presentation of pluralistic arguments and information to agencies. In other words, if financial institutions and asset management or insurance companies are on opposite sides of important Volcker rule issues, then one might conclude that the goals of pluralism have been met, despite the overrepresentation of industry voices in Volcker rule meetings. A similar conclusion might be drawn if financial institutions are divided – perhaps because the interests of small banks diverge from those of large ones, or because institutions with securities broker-­‐dealer divisions have interests at odds with pure banking institutions. Using NVivo sorting software, we coded all unique comment letters according to the author’s general stance on the Volcker rule as either supporting the rule or opposing the rule. A letter coded as supporting the rule meant that the author urged federal agencies to broadly construe the congressional mandate so as to cover more activities and to resist industry pressure to weaken the rule. A letter coded as opposing the rule urged the agencies to reduce the possible scope of the Volcker Rule to exclude certain items or activities from regulation.21 As seen in Table 3 and Figure 3A, industry trade groups, financial institutions, foreign governments, domestic municipal entities, venture capital firms, and lobbying firms uniformly opposed the rule. The overwhelming majority of law firms (90%), nonfinancial companies (80%), asset management companies (94%), 21 Few, if any, participants literally opposed the rule in its entirety. Instead, negative comments typically voiced support for the rule, followed by a request for favorable interpretations or exemptions governing the letter writer’s activities. We label these “oppose rule” for simplicity. and congressional members (72%) also opposed the Volcker Rule. The vast majority of private individuals (93%), academics (70%), and public interest groups (77%) supported it. As shown by Figure 3B, this means that the bulk of comment letters were written in opposition to the rule. This content analysis shows Volcker rule participation to be less pluralistic than it appeared at first glance. First, although a broad array of interest groups participated in the regulatory process, industry voices were astonishingly unified in their approach. Even domestic state and foreign governments were characterized as in opposition to the rule, due to their concern with the Volcker Rule’s effects on market liquidity. Only academics, public interest groups, and private individuals were coded as supporting the rule, and even they were not uniform in their stance. D. Section Summary Summarize conclusions regarding the level of pluralism in participation. VI. THE EFFECTIVENESS OF PARTICIPATION DEPENDS ON THE QUALITY OF ARGUMENTS AND INFORMATION Agencies need information and data to make decisions. If that data and information is derived from only a single source – say regulated interests – then one might expect informationally biased regulators to favor special interest groups providing the information. As noted in the previous section, participation in Volcker Rule comment letter writing was somewhat pluralistic, with academics, public interest groups, and private individuals all writing in support of the rule. If, however, those groups in support of the Volcker rule provided little useful information or arguments to regulators while those writing in opposition did, then one might still be concerned about informational capture. A. Comment Length22 22 We did not include attachments or exhibits in word count. See part VI.B., below. Although length alone is a far from perfect measure of the sophistication or substantive content of a comment letter, neither is it irrelevant. As a result, comment length is a fairly common proxy for letter quality employed by researchers. Especially with a rule as complex and lengthy as the Volcker rule (the proposed rule numbered 127 pages in the Federal Register and contained 383 questions), it is unlikely that very short comments provide specific substantive guidance to the federal agencies charged with Volcker Rule implementation. As shown in Table 4, by far the highest average comment length – nearly three times the next highest average – was held by public interest groups. However, this result is almost entirely driven by a single comment letter -­‐-­‐ the much-­‐
publicized comment submitted by Occupy the SEC, which numbered an astonishing 140,471 words. Excluding the OSEC comment brings the average length of public interest group comments down to 7,618, more in line with other writers. Although private individual comments were among the shortest letters, the average length is still in line with other commenters, such as municipal and foreign governments, and longer than letters sent by venture capital firms, all of whom have greater expertise and resources to dedicate to letter writing and who have more at stake in the outcome. However, this result is largely driven by two outlier letters: one with 32,130 words and the other with 10,498 words.23 Eliminating these letters from the analysis yields an average comment length of 269 words, the lowest among all entity groups. Finally, we draw the reader’s attention to the averages for industry trade group letters from Table 4. Initially, we were surprised that industry trade group letters did not have a longer word count, as during comments solicited prior to the NPRM, industry trade group letters had the highest average word counts.24 However, we do not believe this justifies a conclusion that industry trade group interest in the Volcker Rule has waned. Rather, as demonstrated by Figure 4B, as 23 Neither comment provides much substance, despite their length. The RA coder comments characterize one of these letters as “full of folksy comments but painfully long.” 24 Krawiec, supra. (discussing the preproposal period) measured by the total number of words submitted, industry trade groups remain the leaders. They have simply sent in more comments of a shorter length, sometimes dividing their letters into subject matter categories for which different subsets of the organization have drafting responsibility. To illustrate, SIFMA (the Securities Industry and Futures Markets Association) sent in 9 letters on topics ranging from the application of the Volcker rule to securitization and insurance-­‐linked securities transactions, the treatment of asset-­‐backed commercial paper and tender option bond transactions, and to request an extension of the deadline for the submission of comment letters. SIFMA submitted these letters independently, through various subdivisions (e.g., the Asset Management Group and the Municipal Securities Division), and together with other entities, including the American Banker Association, The Clearing House, and the Financial Services Roundtable. B. Other Sophistication Proxies As noted, word counts can be imperfect measure of letter quality and should be interpreted with caution. We thus tried to identify other proxies that might signal the relative sophistication of a comment letter, including whether or not the comment addressed specific questions posed by the NPRM; whether the letter writer recommended that specific language be added, deleted, or changed in the statute; whether the letter provided some data or analysis to aid the agency in its deliberations; whether the letter referenced other comment letters; whether the letter included attachments; and whether the writer referenced the legislative history of the statute. The results of this analysis are displayed in Tables 5 A and B. Table 5A measures sophistication as a percentage (and count) of letters containing the proxy of interest – in other words, of the letters that addressed specific NPRM questions, what percentage (and how many) were authored by financial institutions? Under this measure, it is clear that industry trade groups, financial institutions, and asset management firms are the most sophisticated commenters on the Volcker rule. For example, these three groups account for 60% of comment letters that addressed specific questions, 71% of comment letters with attachments, 59% of comment letters that discuss the rule’s legislative history, 72% of letters that provided data or analysis, 72% of letters that recommended specific language or changes, and 78% of comment letters that referenced other comment letters. In contrast, none of the comment letters from venture capital, private individuals, state governments, or Congress provided data or analysis. Because measures in Table 5A are sensitive to the volume of letters sent by each commenter type, however, another measure of interest is contained in Table 5B – the percentage of letters within each entity type that contain the sophistication proxy of interest. In other words, among the 96 industry trade group letters, what percentage suggested specific language changes to the rule? These results provide interesting information as well. For example, 70% of law firm letters recommend specific language changes, as do 65% of the financial institution letters. Letters from private individuals contain few sophistication proxies, as is to be expected. Letters from academics, though smaller in number, are (reassuringly) sophisticated across all of the chosen proxies.25 VII. THE ROLE OF THE COURTS The judiciary plays a role in the regulatory process as well, through the ability of parties to challenge agency rules. In the case of financial regulation, such challenges have met with increasing success in recent years. (See, e.g. Business Roundtable.) Accordingly, we identified and coded for a number of “litigation threats.” [More] VIII. THE ROLE OF CONGRESS 25 It should be noted that no row should be expected to total 100%, both because the sophistication proxies are not mutually exclusive and because some letters may contain no sophistication proxy at all. Congress also plays a continuing role in rulemaking, both through its ability to alter outcomes through legislation and through its control of agency budgets. These abilities are potentially highly relevant for the Volcker rule, as legislative efforts to repeal the provision began as soon as a republican majority took control. In addition, public and acrimonious fights over the budgets of both the SEC and CFTC began shortly after the passage of Dodd-­‐Frank. Accordingly, we paid special attention to Congressional involvement in the Volcker rulemaking process. [More] IX. Conclusion [To come and we welcome your help here!] -­‐At first glance, the Volcker rule appears to have had much pluralistic participation. As we dig into the data, however, industry representation is pretty lopsided. There is no interest group competition – only public interest groups, academics, and private individuals were activists in favor of the rule. -­‐And industry participants are much more active in face to face meetings, and the information they provide is more sophisticated. -­‐At the same time, individuals, public interest groups, and academics did turn out in reasonable numbers and academic and public interest group participation was fairly sophisticated, so all is not lost. -­‐In our view, though, only if Croley is right about the public interested tendencies of regulators should we expect a public interested Volcker rule – pure aggregation or informational bias analysis would suggest a tilt in favor of industry -­‐Recall that we purposely chose the Volcker rule in the belief that it is the best-­‐case scenario for public interest-­‐type accounts in the financial area. We expect it is not generalizable to more mundane rules. -­‐We are skeptical that reforms designed to improve access to the rulemaking process will yield more public interested results. With respect to the Volcker rule, access was open, and there was a fair amount of participation by generalized interests. But the economic stakes are simply too high for industry in this case and no amount of reform is likely to change that. -­‐We also believe that our analysis suggests that notice and comment is not a particularly efficient method for generating the information and arguments that may assist agencies in reaching public-­‐interested outcomes. As we will detail in a later paper, although most industry participants did not rely on form letters, neither did most of their input involve unique information – there was much repetition, even among sophisticated participants Table 1. Comment Letters by Submitter
#
% of
total
Private Individual Using Form Letter 1
Private Individual Using Form Letter 2
Private Individual Using Form Letter 3
Insurance Form Letter
Venture Capital Form Letter
Total Form Letters
15,639
1,757
643
20
10
18,069
84.7
9.5
3.5
0.1
0.1
97.9
Industry Trade Group
Private Individual
Financial Institution
Congress*
Asset Mgmt
Foreign Govt.**
Law Firm
Public Interest***
Venture Capital
Academic†
State Govt.††
Insurance
Non-financial Corp.
Lobbying†††
Total Unique Comment Letters
Total Comment Letters
102
64
44
33
33
17
15
15
14
14
10
9
7
4
381
18,450
0.6
0.3
0.2
0.2
0.2
0.1
0.1
0.1
0.1
0.1
0.1
0.0
0.0
0.0
2.1
100.0
% of total
unique
letters
Form Letters
Unique Letters
*Includes members of Congress and their staff
**Includes Foreign governments, entities, central banks, regulatory bodies, and international
organizations acting on their behalf
***Includes public interest, research, advocacy, and labor organizations
† Includes academics and public intellectuals
††Includes state and municipal governments, subdivisions, and officials
†††Includes lobbying or political consulting firms
26.8
16.8
11.5
8.7
8.7
4.5
3.9
3.9
3.7
3.7
2.6
2.4
1.8
1.0
100.0
Figure 1A. Comment Letters by Submitter
3.5%
Individual
Form Letter 3
0.1%
2.1%
Insurance
Unique Form Letter 0.1%
Comment
VC Form Letter
Letter
9.5%
Individual Form
Letter 2
N=18,450
84.7%
Individual Form
Letter 1
Table 2. Federal Agency Meetings to Discuss the Volcker
Rule
Type
# of
%
Meetings
Financial Institution
259
35.7
Asset Mgmt
114
15.7
Industry Trade Group
86
11.8
Law Firm
75
10.3
Public Interest
64
8.8
Insurance
52
7.2
Foreign Govt.
23
3.2
Non-financial Corp.
18
2.5
Lobbying
17
2.3
Academic
12
1.7
Congress
3
0.4
State Govt.
3
0.4
Total
726
100.0
Table 3. General Stance on Volcker
Rule
Less
Restrictive
Opposes
Rule
Industry Trade Group
Foreign Govt.
Financial Institution
State Govt.
Venture Capital
Lobbying
Non VC Asset Mgmt
Law Firm
Non-financial Corp
Congress
Insurance
100
100
100
100
100
100
94
90
80
72
64
More
Restricitv
e
Supports
Rule
0
0
0
0
0
0
6
10
20
28
36
Academic
Public interest
Private Individual
Total
30
23
7
73
70
77
93
27
n
Less
Restrictive
Opposes
Rule
96
17
51
11
12
5
32
10
5
32
14
96
17
51
11
12
5
30
9
4
23
9
More
Restricitv
e
Supports
Rule
0
0
0
0
0
0
2
1
1
9
5
10
13
73
381
3
3
5
278
7
10
68
103
Table 4. Word Count Statistics
Average
Comment
Length
(Words Per
Comment)
Form Letters
Private Individual Using Form Letter 1
Private Individual Using Form Letter 2
Private Individual Using Form Letter 3
Insurance Form Letter
VC Form Letter
Unique Comment Letters
Public Interest
Financial Institution
Lobbying
Non-financial Corp.
Law Firm
Industry Trade Group
Academic
Insurance
Asset Mgmt
Congress
State Govt.
Private Individual
Foreign Govt.
Venture Capital
All Unique Comment Letters
Min
Max
Total
Words
430
341
3,166
668
1,809
51
77
331
171
200
112
6
319
257
6
140,471
49,056
15,781
16,940
22,051
68,313
38,164
7,389
14,707
28,516
2,388
32,130
2,855
1,116
140,471
396,015
407,088
36,548
54,187
102,030
570,894
73,864
32,616
104,181
64,020
9,640
59,968
13,088
8,960
123
155
225
332
498
26,401
9,252
9,137
7,741
6,802
5,597
5,276
3,624
3,157
1,940
964
937
818
640
5,085