Economic Analysis and Independent
Regulatory Agencies
Curtis W. Copeland
April 30, 2013

This draft report was prepared for the consideration of the Administrative
Conference of the United States. The views expressed are those of the author and
do not necessarily reflect those of the members of the Conference or its
committees.

Table of Contents
I.

Executive Summary ........................................................................................................4

II.

Introduction .................................................................................................................5
A. Objectives, Scope, and Methodology ................................................................................. 8

III.

Background ............................................................................................................... 10
A. Some Crosscutting Analytical Requirements Are Not Directly Applicable to Independent
Regulatory Agencies .................................................................................................................. 13
1.
Executive Order 12866 ................................................................................................ 14
2. Unfunded Mandates Reform Act .................................................................................. 19
B. Presidential Authority ....................................................................................................... 20
1. A February 12, 1981, Document ................................................................................... 22
2. An Earlier OLC Opinion .................................................................................................. 23
3. A Congressional Grant of Authority .............................................................................. 25
C. Legislative Initiatives.......................................................................................................... 26
1. Objections ..................................................................................................................... 29
IV. Analytical Requirements and Independent Regulatory Agencies ..................................... 31
A. Crosscutting Analytical Requirements Applicable to Independent Regulatory Agencies 31
1. Regulatory Flexibility Act .............................................................................................. 31
2. Paperwork Reduction Act .............................................................................................. 34
3. National Environmental Policy Act ................................................................................ 36
4. Other Possible Crosscutting Analytical Requirements .................................................. 37
B. Agency- or Issue-Specific Analytical Requirements ........................................................... 38
1. Securities and Exchange Commission ........................................................................... 38
2. Commodity Futures Trading Commission ..................................................................... 42
3. “Federal Banking Agencies” .......................................................................................... 45
4. Consumer Financial Protection Bureau ......................................................................... 48
5. Nuclear Regulatory Commission ................................................................................... 49
6. Consumer Product Safety Commission ......................................................................... 51
7. Federal Trade Commission ............................................................................................ 54
C. Agencies With No Specific Analytical Requirements .......................................................... 55
D. What Does “Consider” Costs and Benefits Mean? ............................................................ 55
1. Business Roundtable v. SEC ........................................................................................... 57

V. Previous Reports Examining Economic Analysis Practices at Independent Regulatory
Agencies .............................................................................................................................. 61
A. OMB Reports on Regulatory Costs and Benefits ................................................................ 61
1. Previous OMB Reports .................................................................................................. 62
2. Summary ....................................................................................................................... 64
3. Analysis of the OMB Reports ......................................................................................... 65
B. Inspectors General Reports on Banking Agencies.............................................................. 73
1. Board of Governors of the Federal Reserve System ...................................................... 73
2. Securities and Exchange Commission ........................................................................... 74
3. Federal Deposit Insurance Corporation......................................................................... 76
4. Commodity Futures Trading Commission ..................................................................... 77
5. Comptroller of the Currency ......................................................................................... 78
C. GAO Reports on Analyses for Dodd-Frank Act Rules .......................................................... 79
1. GAO’s December 2012 Report....................................................................................... 80

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D.

Committee on Capital Markets Regulation Letter ............................................................. 81
1. Analysis of CCMR Findings............................................................................................. 82
E. Resources for the Future Conference ................................................................................. 84
F. Mercatus Center Working Paper ........................................................................................ 86
VI. Analyses in Major Rules Published During FY2012 and Other Recent Rules.................... 87
A. Extent of Analysis and Explanations Within Particular Agencies ...................................... 91
1. Commodity Futures Trading Commission ..................................................................... 91
2. Securities and Exchange Commission ........................................................................... 96
3. OCC, FDIC, and the Federal Reserve System ................................................................. 98
4. Consumer Financial Protection Bureau ......................................................................... 98
5. Consumer Product Safety Commission ....................................................................... 100
6. Federal Communications Commission ........................................................................ 102
7. Nuclear Regulatory Commission ................................................................................. 105
VII.

How Analyses Are Used in Agency Decision Making .................................................. 107

VIII.
A.
B.

Concluding Observations ......................................................................................... 110
Congressional Options ..................................................................................................... 113
Agency Options ................................................................................................................ 114
1. Circular A-4 Principles.................................................................................................. 115
2. Other Possible “Best Practices” ................................................................................... 121
3. Other Considerations .................................................................................................. 123

3

I.

Executive Summary

A number of individuals and organizations have recommended that independent
regulatory agencies be required to prepare cost-benefit or other types of economic
analyses before issuing certain rules. Others, however, have opposed such requirements.
This report (1) provides information on independent regulatory agencies and their
rulemaking activity in recent years; (2) discusses various crosscutting and agencyspecific analytical requirements that apply to such agencies, as well as some that do not
apply; (3) discusses recent reports by the Office of Management and Budget (OMB), the
Government Accountability Office, agency inspectors general, and others regarding the
extent to which certain independent regulatory agencies prepare cost-benefit and other
types of analyses; and (4) examines the preambles of “major” final rules issued during
FY2012 by these agencies to determine the extent to which cost-benefit and other types
of analyses have been conducted. The report also uses interviews conducted with officials
in five of the independent regulatory agencies to examine why certain analyses were not
prepared for certain rules, or (if the analyses were prepared) how the analyses were used
in agency decision making. The report does not take a position regarding any legislative
initiatives, and does not address whether independent regulatory agencies’ rules or
economic analyses should be subject to review by OMB or other parties.
Agency-specific economic analysis requirements vary significantly, with some
independent regulatory agencies (e.g., the Consumer Product Safety Commission)
required to prepare a regulatory analysis of costs and benefits for certain rules; some
(e.g., the Commodity Futures Trading Commission and the Securities and Exchange
Commission) required to “consider” costs and benefits or other factors associated with
their rules; and others (e.g., the Federal Communications Commission) not formally
subject to any agency-specific economic analysis requirements. Previous studies indicate
that independent regulatory agencies often do not quantify or monetize regulatory
benefits, and often quantify and monetize only paperwork costs. (However, some of the
studies appear to understate the extent to which economic analyses are done.)
Examination of the 22 major rules issued by independent regulatory agencies during
FY2012 indicates a somewhat similar pattern. Only one rule contained any quantitative
benefit information, but 18 of the 22 rules contained at least some quantitative or
monetized information about expected costs. Although paperwork costs were most
commonly quantified and monetized, some of the rules were primarily about reporting
and recordkeeping, so most of their costs appeared to be paperwork related. Some
agency officials noted that their agencies are not required to prepare cost-benefit
analyses, and said that data on costs and benefits are often not available, particularly
when they are required to regulate in new areas with tight statutory deadlines.
The report recommends a series of “best practices” that independent regulatory agencies
could use to improve their economic analyses. For instance, it proposes that these
agencies voluntarily adopt general principles for economic analysis contained in OMB
Circular A-4; use a baseline for analysis that includes both statutorily mandated
requirements and those resulting from agency discretion; quantify and monetize

4

regulatory costs and benefits whenever possible; prepare analyses that are as transparent
and reproducible as possible; and include in the proposed and final rule a summary
statement or table concisely showing estimates of benefits, costs, and transfers. Other
recommended best practices include the development of agency-specific written guidance
on economic analysis, making analysis an early part of rule development, and using the
expertise in other agencies (perhaps using the Council of Independent Regulatory
Agencies as a forum) and the Office of Information and Regulatory Affairs (OIRA)
within OMB. Finally, the report recommends the use of expedited PRA reviews and
adequate funding for any increased analytical requirements.

II. Introduction
The Dodd-Frank Wall Street Reform and Consumer Protection Act (P.L. 111-203, July
21, 2010, hereafter the “Dodd-Frank Act”) was enacted in the wake of what many believe
was the worst U.S. financial crisis since the Great Depression. However, enactment of
the legislation was only the beginning of the policy process. According to the
Congressional Research Service (CRS), the Dodd-Frank Act contained at least 330
provisions that expressly indicated that rulemaking was either required (about 150
provisions) or permitted (about 180 provisions).1 More than 80% of the provisions
assigned rulemaking responsibilities or authorities to one of five federal agencies: the
Securities and Exchange Commission (SEC), the Board of Governors of the Federal
Reserve System, the Commodity Futures Trading Commission (CFTC), the Federal
Deposit Insurance Corporation (FDIC), and the newly-created Consumer Financial
Protection Bureau (CFPB). Dozens of other provisions in the act gave joint rulemaking
responsibility or authority to two or more of these agencies (e.g., CFTC and the SEC).
All five of these agencies are considered “independent regulatory agencies,” which are
defined in the Paperwork Reduction Act (44 U.S.C. § 3502(5)) as 19 enumerated
agencies and “other similar agenc[ies] designated by statute as a Federal independent
regulatory agency.” 2 Other types of executive branch agencies may be generally
1

U.S. Congressional Research Service, Rulemaking Requirements and Authorities in the Dodd-Frank Wall Street
Reform and Consumer Protection Act, by Curtis W. Copeland, CRS Report R41472, November 3, 2010, available at
http://www.llsdc.org/attachments/files/255/CRS-R41472.pdf. Other organizations have reached similar conclusions.
For example, the Davis-Polk law firm has identified 398 rulemaking requirements, and produces a monthly tracking
report. See http://www.davispolk.com/Dodd-Frank-Rulemaking-Progress-Report/.
2
Specifically, § 3502(5) lists the following as “independent regulatory agencies”:
the Board of Governors of the Federal Reserve System, the Commodity Futures Trading
Commission, the Consumer Product Safety Commission, the Federal Communications
Commission, the Federal Deposit Insurance Corporation, the Federal Energy Regulatory
Commission, the Federal Housing Finance Agency, the Federal Maritime Commission, the Federal
Trade Commission, the Interstate Commerce Commission, the Mine Enforcement Safety and
Health Review Commission, the National Labor Relations Board, the Nuclear Regulatory
Commission, the Occupational Safety and Health Review Commission, the Postal Regulatory
Commission, the Securities and Exchange Commission, the Bureau of Consumer Financial
Protection, the Office of Financial Research, Office of the Comptroller of the Currency.
The United States International Trade Commission was subsequently added as one of the "other similar agenc[ies]
designated by statute as a Federal independent regulatory agency.” See 19 U.S.C. §1330(f) (stating that the United

5

categorized as Cabinet departments (e.g., the Departments of Transportation and the
Treasury) and “independent” agencies that are not part of Cabinet departments, but are
not independent regulatory agencies (e.g., the Environmental Protection Agency (EPA)
and the Office of Personnel Management).3 Perhaps the most agreed upon characteristic
of an independent regulatory agency is what is termed “for cause” removal protection,
which is intended to provide a measure of independence from presidential direction and
control.4 The heads of Cabinet departments and independent agencies generally serve “at
the pleasure of the President” and therefore can be removed at any time. In contrast, the
heads of independent regulatory agencies, whether part of a multi-member board like the
SEC or a single administrator like the CFPB, can only be removed by the President for
some type of “cause.” In some cases, the underlying statute describes the type of conduct
that can lead to removal,”5 but in other cases, the “cause” is not spelled out in law.6 In
still other cases, courts have concluded that the leadership of certain agencies has “for
cause” removal protection even in the absence of an explicit statement to that effect.7
Another characteristic of independent regulatory agencies and their separation from the
President is that their rules are not subject to most executive order rulemaking
requirements. Perhaps most notably, Executive Order (EO) 12866,8 issued by President
Clinton in 1993, requires Cabinet departments and independent agencies to provide the
Office of Information and Regulatory Affairs (OIRA) within the Office of Management
and Budget (OMB) a cost-benefit or other type of economic analysis before issuing
“economically significant” regulatory actions (e.g., proposed and final rules expected to
have an annual impact on the economy of $100 million or more).9 The analysis is

States International Trade Commission "shall be considered to be an independent regulatory agency for purposes of
chapter 35 of title 44, United States Code"). The Interstate Commerce Commission was abolished effective January 1,
1996. Some of its regulatory functions were transferred to the newly created Surface Transportation board within the
Department of Transportation. Other functions were either eliminated or transferred to the Federal Motor Carrier
Safety Administration or to the Bureau of Transportation Statistics within the Department of Transportation.
3
For a more detailed discussion of types of agencies, see David E. Lewis and Jennifer L. Selin, Sourcebook of United
States Executive Agencies, First Edition, December 2012, prepared for the Administrative Conference of the United
States, available at http://www.acus.gov/sites/default/files/documents/Sourcebook-2012-Final_12-Dec_Online.pdf.
4
Other elements of independence include whether legislative proposals, testimony, and other documents presented to
Congress must be cleared through OMB; whether the agency has independent litigating authority; and whether agency
budget requests are submitted to OMB and Congress simultaneously. For more information on independent regulatory
agencies, see Paul R. Verkuil, “The Purposes and Limits of Independent Agencies,” Duke Law Journal, vol. 37 (1988),
pp. 257-279.
5
For example, members of the Consumer Product Safety Commission (CPSC) “may be removed by the President for
neglect of duty or malfeasance in office but for no other cause.” See 15 U.S.C. § 2053(a).
6
For example, members of the Board of Governors of the Federal Reserve hold office for a term of 14 years “unless
sooner removed for cause by the President.” See 12 U.S.C. § 242.
7
Lower courts have inferred the application of a “for cause” removal restriction in at least three agencies—the SEC,
the National Credit Union Administration, and the Federal Election Commission. For a discussion of this issue, see
CRS Report R42720, Presidential Review of Independent Regulatory Commission Rulemaking: Legal Issues, by Vivian
S. Chu and Daniel T. Shedd (September 10, 2012), pp. 16-18, available at http://www.fas.org/sgp/crs/misc/R42720.pdf.
8
Executive Order 12866, “Regulatory Planning and Review,” 58 Federal Register 51735, October 4, 1993.
9
Section 3(f) of EO 12866 defines a “significant” regulatory action as one that satisfies any of four conditions: (1)
Have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a
sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal
governments or communities; (2) Create a serious inconsistency or otherwise interfere with an action taken or planned
by another agency; (3) Materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the

6

required to include not only an assessment of anticipated costs and benefits (quantified, to
the extent feasible), but also an identification of “potentially effective and reasonably
feasible alternatives to the planned regulation… and an explanation why the planned
regulatory action is preferable to the identified potential alternatives.”10 Independent
regulatory agencies are not covered by these requirements in the executive order.11
The volume of rulemaking expected to result from the Dodd-Frank Act has increased
concerns about the quality of the rules issued by independent regulatory agencies, and has
led to calls from a variety of quarters that these agencies be required to prepare costbenefit or other types of economic analyses before issuing economically significant
rules.12 For example, at a February 2011 congressional hearing, Professor Peter L.
Strauss of Columbia Law School (and former general counsel of the Nuclear Regulatory
Commission) referenced the analytical requirements in EO 12866 and said:
[S]houldn’t Congress also bring the independent regulatory commissions under these
mandates? Presidents haven’t done that, as I understand it, only because they fear the
political costs to their relationship with you, with the Congress. Given the extraordinary
range of rulemaking Dodd-Frank requires of independent commissions, Congress ought
to welcome this change.13

Also, in its 2011 interim and final reports, the President’s Council on Jobs and
Competitiveness (a panel of non-governmental experts from business, labor, academia
and elsewhere) recommended that legislation be enacted to require independent
regulatory agencies to conduct cost-benefit analysis for all new “economically
significant” regulatory actions.14 In September 2012, seven former OIRA Administrators
sent a letter to the Chairman of the Senate Committee on Homeland Security and
Governmental Affairs stating that independent regulatory agencies “typically do not
engage in the economic analysis that has come to be expected from executive agencies,”
rights and obligations of recipients thereof; or (4) Raise novel legal or policy issues arising out of legal mandates, the
President’s priorities, or the principles set forth in this Executive order. Rules fitting the first of these conditions are
often referred to as “economically significant” regulatory actions.
10
Ibid., Section 6(a)(3)(B).
11
Section 3(b) of Executive Order 12866 defines an “agency” (unless otherwise indicated) as “any authority of the
United States that is an ‘agency’ under 44 U.S.C. 3502(1), other than those considered to be independent regulatory
agencies….” Independent regulatory agencies are, however, covered by the requirements in Section 4(b) and Section
4(c) of the executive order pertaining to the development of a unified regulatory agenda and a regulatory plan.
12
Calls for independent regulatory agencies to be covered by cost-benefit analysis requirements are not new. See, for
example, Robert H. Hahn and Cass R. Sunstein, “A New Executive Order for Improving Federal Regulation? Deeper
and Wider Cost-Benefit Analysis,” University of Pennsylvania Law Review, volume 50 (2002), pp. 1489-1552, in
which the authors said (p. 1494) that “the commitment to cost-benefit analysis has been far too narrow; it should be
widened through efforts to incorporate independent regulatory commissions within its reach.”
13
Hearing before the Subcommittee on Courts, Commercial and Administrative Law, House Committee on the
Judiciary, “APA at 65: Is Reform Needed to Create Jobs, Promote Economic Growth, and Reduce Costs?,” February
28, 2011, Serial No. 112-17, p. 42. See http://judiciary.house.gov/hearings/printers/112th/112-17_64854.PDF for a
copy of the hearing record. The other two witnesses at that hearing (Susan Dudley, former OIRA Administrator during
the George W. Bush Administration, and Jeffrey A. Rosen, former general counsel at OMB and the Department of
Transportation) also supported extending cost-benefit analysis requirements to independent regulatory agencies.
14
See http://files.jobs-council.com/files/2011/10/JobsCouncil_Regulatory.pdf for a summary of the final report. See
http://files.jobs-council.com/jobscouncil/files/2011/10/JobsCouncil_InterimReport_Oct11.pdf for a copy of the full
interim report. The council, according to the White House website, “was created to provide non-partisan advice to the
President on continuing to strengthen the Nation's economy and ensure the competitiveness of the United States and on
ways to create jobs, opportunity, and prosperity for the American people.”

7

and that those agencies “should be held to the same good-government standards as
executive agencies.”15
However, not everyone believes independent regulatory agencies should be subject to
these types of analytical requirements. Some of the objections center on maintaining the
independence of these agencies from the President. For example, Rena Steinzor of the
Center for Progressive Reform said:
Congress created independent agencies exactly so that they’d have some room to resist
presidential political meddling. Subjecting these agencies to Executive Order
requirements…defeats the whole point of making the agencies independent at the outset.
Congress wanted these agencies to be able to use their unique expertise on policy matters
to develop the best solutions to the social problems that Congress created them to
address.16

Similarly, Amit Narang of Public Citizen said these agencies “independent for a reason,”
and legislation to make them subject to analysis requirements from the President
“changes things to a great degree.” 17 In October 2012, the heads of six independent
regulatory agencies wrote to the Chairman and Ranking Member of the Senate
Committee on Homeland Security and Governmental Affairs expressing their concerns
about pending legislation that would allow the President to require the agencies to
prepare cost-benefit analyses for their economically significant rules.18 Among other
things, they said the bill would “give the President unprecedented authority to influence
the policy and rulemaking functions of independent regulatory agencies and would
constitute a fundamental change in the role of independent regulatory agencies.”

A.

Objectives, Scope, and Methodology

The primary objective of this report19 is to assess the extent to which independent
regulatory agencies currently prepare cost-benefit and other types of economic analyses
in connection with the issuance of their “economically significant” or “major” rules.20
15

See http://portman.senate.gov/public/index.cfm/files/serve?File_id=563c60e4-3770-4329-b1aa-ff51752cd750 for a
copy of the letter. Those signing the letter were Sally Katzen, John Spotila, Christopher C. DeMuth, Wendy Lee
Gramm, Susan Dudley, James C. Miller III, and John D. Graham.
16
Rena Steinzor, “The Independent Agency Regulatory Analysis Act, as Critiqued by Co-Sponsor Susan Collins and
Me,” at http://www.progressivereform.org/CPRBlog.cfm?idBlog=E42958C4-B61A-8FDA-62ACBF689F7D0313.
17
Kevin Miller, “Bill Questions Oversight of Powerful Independent Agencies,” Morning Sentinel, September 13, 2012,
p. B.2, at http://www.onlinesentinel.com/news/bill-questions-oversite-of-powerful-independent-agencies_2012-0912.html.
18
See http://www.buckleysandler.com/uploads/104/doc/10-2612%20Agency%20Letter%20to%20Lieberman%20re%20S%203468.pdf for a copy of this letter. Agency heads
signing the letter were from the Board of Governors of the Federal Reserve System, the Comptroller of the Currency,
CFPB, the SEC, FDIC, and the National Credit Union Administration. The then-pending legislation, S. 3468 in the
112th Congress, is discussed later in this report.
19
This report can be viewed as related to an earlier report the author prepared for ACUS on the analytical requirements
in rulemaking. See http://www.acus.gov/wp-content/uploads/downloads/2012/03/COR-Copeland-ReportCIRCULATED.pdf for a copy of that report.
20
The Congressional Review Act (5 U.S.C. § 804(2)) defines a “major” rule as “any rule that the Administrator of the
Office of Information and Regulatory Affairs of the Office of Management and Budget finds has resulted in or is likely
to result in—(A) an annual effect on the economy of $100,000,000 or more; (B) a major increase in costs or prices for

8

Major or economically significant rules are the focus of this report because some current
analytical requirements only apply to such rules (e.g., EO 12866), and they are more
likely to trigger other requirements than non-major rules. As discussed later in this
report, such rules are also the focus of several recent legislative proposals.
If the research indicates that certain independent regulatory agencies are not preparing
cost-benefit or other economic analyses for these rules, the report will discuss the reasons
why, including any considerations that may be unique to such agencies or categories of
agencies (e.g., financial regulatory agencies). If the research indicates that certain
independent regulatory agencies are preparing such analyses, the report will discuss how
those agencies use the results in crafting their rules. Finally, the report will identify any
“best practices” that appear applicable to the preparation and use of economic analyses
by independent regulatory agencies.
To address these objectives, the report (1) provides background information on
rulemaking requirements in general and the rulemaking activity of independent
regulatory agencies in recent years; (2) discusses various crosscutting and agencyspecific analytical requirements that apply to independent regulatory agencies, as well as
some that do not apply; (3) discusses recent reports by OMB, the Government
Accountability Office (GAO), agency inspectors general, and others regarding the extent
to which certain independent regulatory agencies prepare cost-benefit and other types of
analyses; and (4) examines GAO major rule reports and the preambles of major final
rules issued during FY2012 by these agencies to determine the extent to which costbenefit and other types of analyses have been conducted.21 The report also uses
interviews conducted with officials in five of the independent regulatory agencies that
issued many of these rules (i.e., the SEC, CFTC, the Nuclear Regulatory Commission
(NRC), the Consumer Product Safety Commission (CPSC), and the Federal
Communications Commission (FCC)) to examine why analyses were not prepared for
certain rules, or (if the analyses were prepared) how the analyses were used in agency
decision making.22
The report does not take a position regarding any legislative initiatives, and does not
address whether independent regulatory agencies’ rules or economic analyses should be
subject to review by OIRA or other parties.23 Nor will the report examine whether
consumers, individual industries, Federal, State, or local government agencies, or geographic regions; or (C) significant
adverse effects on competition, employment, investment, productivity, innovation, or on the ability of United Statesbased enterprises to compete with foreign-based enterprises in domestic and export markets. The term does not include
any rule promulgated under the Telecommunications Act of 1996 and the amendments made by that Act.” The
definitions of “major” and “economically significant” rules are similar, and most “economically significant” rules are
also considered “major.” Some rules may be considered “major” that are not “economically significant” (e.g., rules
that would have a significant adverse effect on the ability of U.S.-based enterprises to compete with foreign-based
enterprises in domestic and export markets). See p. 5 of OMB guidance on the CRA, available at
http://www.whitehouse.gov/sites/default/files/omb/assets/memoranda_2010/m99-13.pdf.
21
The major final rules and the agencies issuing them were identified using the GAO rules database that was developed
pursuant to the CRA The GAO database may be accessed at http://gao.gov/legal/congressact/fedrule.html.
22
Officials in two other agencies, the Federal Reserve System and the Consumer Financial Protection Bureau, would
not agree to an interview.
23
The Administrative Conference of the United States has supported presidential review of independent regulatory
agencies’ rules for nearly 25 years. See ACUS Recommendation 88-9, which says “As a matter of principle,

9

agencies are understating the impact of their rules to avoid being considered “major” or
“economically significant,”24 or whether the agencies are conducting retrospective
reviews of existing regulations. The term “economic analysis” is used in this report to
refer to a variety of analyses that are required before agencies issue final rules, including
(but not limited to) cost-benefit analysis (sometimes referred to as “benefit-cost
analysis”).

III. Background
As Table 1 below shows, from January 2007 through December 2012, independent
regulatory agencies generally did not issue as many final rules, or as many major final
rules, as certain Cabinet departments and independent agencies like EPA. Among the
independent regulatory agencies, the FCC published the most final rules during this sixyear period, but the SEC, the Federal Reserve System, and CFTC published the most
major final rules.
Table 1: Final and Major Final Rules Issued by Selected Agencies, 2007 – 2012
Agency

Final Rules

Major Final Rules

CFTC

72

15

CFPB

33

1

CPSC

44

2

FCC

421

7

FDIC

59

0

FERC

85

3

Federal Reserve System

68

17

FTC

44

1

NCUA

67

0

NRC

103

8

SEC

119

39

Agriculture

947

33

Commerce

1,966

5

Independent Regulatory Agencies

Departments/Independent Agencies

presidential review of rulemaking should apply to independent regulatory agencies to the same extent it applies to the
rulemaking of Executive Branch departments and other agencies.” The recommendation is available at
http://www.acus.gov/acus-recommendations/presidential-review-of-agency-rulemaking/.
24
Others have focused on this issue. See Joseph Aldy, Art Fraas, and Randal Lutter, “Financial Regulation Sans
Analysis,” Politico, June 21, 2012, available at http://www.politico.com/news/stories/0612/77644_Page2.html, in
which the authors call on OMB to “establish regular and formal consultations with all the independent financial
regulatory agencies to ensure reasoned and consistent determinations as to whether their regulations are ‘major.’”

10

Energy

111

20

Health/Human Services

521

131

4,609

15

133

17

Transportation

4,245

26

EPA

2,808

33

All Other Agencies

2,791

113

Total

19,246

485

Homeland Security
Labor

Note: Table shows independent regulatory agencies with at least 20 final rules published during the period, and
other agencies with substantial numbers of final rules. The Comptroller of the Currency published 44 final rules
and 4 major rules during this period, but was not an independent regulatory agency until July 2010. From then
through December 2012, it published 21 final rules and 2 major final rules (14 rules and 1 major rule after the
transfer of functions from the Office of Thrift Supervision). CFPB did not exist before enactment of the DoddFrank Act in July 2010. “FERC” is the Federal Energy Regulatory Commission, “FTC” is the Federal Trade
Commission, and “NCUA” is the National Credit Union Administration.
Source: GAO rules database, available at http://gao.gov/legal/congressact/fedrule.html. Accessed March 25,
2013.

Table 2 below shows the number of rules and major rules issued by certain independent
regulatory agencies, by year, from January 2007 through December 2012. As the table
indicates, the annual pace of rulemaking in some agencies has been relatively stable over
time (e.g., the NRC), but has changed in other agencies (e.g., CFTC). Most of the NRC’s
major rules were considered “major” because they annually established licensing,
inspection, and annual fees of more than $100 million that are charged to the agency’s
applicants and licensees, not because of traditional regulatory compliance costs or
benefits.25 The FCC issued the largest number of final rules each year, but had not issued
a major rule since 2008 (when it issued five such rules). In contrast, CFTC issued no
major rules until August 2011, but issued 15 major rules in the next 13 months –
reflecting its increased rulemaking responsibilities since the enactment of the Dodd-Frank
Act in July 2010.
Table 2: Final and Major Final Rules Issued by Selected Independent Regulatory
Agencies by Year, 2007 – 2012
Agency

Rules

CFTC

CFPB

2007

2008

2009

2010

2011

2012

All

14

6

7

5

20

20

Majors

0

0

0

0

6

9

All

0

0

0

0

17

16

Majors

0

0

0

0

0

1

25

The Omnibus Budget Reconciliation Act of 1990, as amended (42 U.S.C. § 2214) generally requires the NRC to
recover through fees approximately 90% of its budget authority, which in recent years has been just under $1 billion.
See, for example, U.S. Nuclear Regulatory Commission, “Revision of Fee Schedules; Fee Recovery for FY 2010,” 75
Federal Register 34219, June 16, 2010.

11

Agency

Rules

CPSC

FCC

FDIC

FERC

FRS

NCUA

NRC

SEC

2007

2008

2009

2010

2011

2012

All

3

8

7

11

7

8

Majors

0

0

0

1

1

0

All

59

91

93

59

67

52

Majors

2

5

0

0

0

0

All

2

14

17

8

12

6

Majors

0

0

0

0

0

0

All

13

19

12

13

16

12

Majors

1

1

1

0

0

0

All

10

11

18

8

15

6

Majors

0

2

6

6

3

0

All

10

10

11

16

16

4

Majors

0

0

0

0

0

0

All

21

15

12

15

14

26

Majors

2

1

2

1

1

1

All

19

21

20

23

21

15

Majors

5

7

7

9

8

3

Note: Table shows the same independent regulatory agencies as included in Table 1.
Source: GAO’s rules database, available at http://gao.gov/legal/congressact/fedrule.html. Accessed March 25,
2013.

The pace of agency rulemaking may be affected by legal challenges and agencies’
responses to those challenges. A May 2012 article in Bloomberg Businessweek noted a
July 2011 case (discussed later in this report) in which an SEC rule was successfully
challenged for having an insufficient cost-benefit analysis, and said the agency’s
rulemaking subsequently “ground to a near-halt, with just 24 agency economists working
full-time to provide analyses for dozens of proposed policies, including 24 unfinished
Dodd-Frank rules.”26 As Table 2 shows, the pace of major and non-major rulemaking at
the SEC does appear to have slowed somewhat during 2012. However, SEC officials told
the author of this report that the slower pace may also be a function of adopting highly
26

Steven Sloan, “Cost-Benefit Analysis Puts the Brakes on Dodd-Frank,” Bloomberg Businessweek, May 7, 2012,
available at http://www.bloomberg.com/news/2012-05-07/cost-benefit-analysis-puts-the-brakes-on-dodd-frank.html.

12

complex rules in areas unfamiliar to the agency (e.g., “Disclosure of Payments by
Resource Extraction Issuers”27 and “Conflict Minerals”28), and because of the tens of
thousands of comment letters the agency has received regarding some of its recent rules.

A.

Some Crosscutting Analytical Requirements Are Not Directly
Applicable to Independent Regulatory Agencies

Rulemaking in most executive branch agencies is governed by statutes like the
Administrative Procedure Act of 1946 (APA, 5 U.S.C. §§ 551-559), which generally
requires agencies to publish a notice of proposed rulemaking (NPRM), give “interested
persons” an opportunity to comment, publish a final rule (accompanied by a concise
statement of basis and purpose), and not make that final rule effective until at least 30
days after its publication. Section 706(2)(A) of the APA instructs courts reviewing
regulations to set aside any agency action found to be “arbitrary, capricious, an abuse of
discretion, or otherwise not in accordance with law.”
Another crosscutting rulemaking requirement is the Congressional Review Act (CRA, 5
U.S.C. §§ 801-808), which requires agencies to submit their final rules to GAO and
Congress before they can take effect,29 and generally requires agencies to delay the
effective dates of “major” final rules (e.g., those expected to have an annual effect on the
economy of $100 million or more) until 60 days after the date that the rules are published
in the Federal Register or submitted to Congress, whichever is later.30 The Act also
requires GAO to provide a report to the congressional committees of jurisdiction within
15 calendar days after each major rule is submitted or published, with the report
summarizing the issuing agency’s compliance with relevant rulemaking requirements.31
As discussed later in this report, several other crosscutting rulemaking requirements – the
Paperwork Reduction Act, the Regulatory Flexibility Act, and the National
Environmental Policy Act – require most federal agencies to prepare some type of
analysis before publishing their rules in the Federal Register. However, other
crosscutting analytical requirements are not directly applicable to independent regulatory
agencies. Two of these non-applicable requirements are discussed below – EO 12866
and the Unfunded Mandates Reform Act of 1995 (UMRA, 2 U.S.C. §§ 1532-1538).
Although EO 12866 appears to have a substantial effect on agency rulemaking behavior,
UMRA does not appear to have had much effect.

27

77 Federal Register 56365, September 12, 2012.
77 Federal Register 56273, September 12, 2012.
29
5 U.S.C. § 801(a)(1).
30
5 U.S.C. § 801(a)(3).
31
5 U.S.C. § 801(a)(2)(A). To access these reports, see http://www.gao.gov/decisions/majrule/majrule.php. In the
reports, GAO generally summarizes the agencies’ economic analyses, and does not prepare its own analysis.
28

13

1.

Executive Order 12866

Executive Order 12866 replaced EO 12291, issued by President Reagan in 1981, which
had also required cost-benefit analysis for certain high-profile rules.32 Section 1(a) of EO
12866 provides a “Regulatory Philosophy,” and states that covered agencies (Cabinet
departments and independent agencies, but not independent regulatory agencies)33
should assess all costs and benefits of available regulatory alternatives, including the
alternative of not regulating. Costs and benefits shall be understood to include both
quantifiable measures (to the fullest extent that these can be usefully estimated) and
qualitative measures of costs and benefits that are difficult to quantify, but nevertheless
essential to consider. Further, in choosing among alternative regulatory approaches,
agencies should select those approaches that maximize net benefits (including potential
economic, environmental, public health and safety, and other advantages; distributive
impacts; and equity), unless a statute requires another regulatory approach.

Section 1(b) of EO 12866 delineates certain “Principles of Regulation” that covered
agencies “should adhere to” (to the extent permitted by law and where applicable). For
example, the agencies are told that they should:


design their regulations “in the most cost-effective manner to achieve the
regulatory objective. In doing so, each agency shall consider incentives for
innovation, consistency, predictability, the costs of enforcement and compliance
(to the government, regulated entities, and the public), flexibility, distributive
impacts, and equity.”



assess both the costs and the benefits of their intended regulations and,
“recognizing that some costs and benefits are difficult to quantify, propose or
adopt a regulation only upon a reasoned determination that the benefits of the
intended regulation justify its costs.”34



tailor their regulations “to impose the least burden on society, including
individuals, businesses of differing sizes, and other entities (including small
communities and governmental entities), consistent with obtaining the regulatory

32

Executive Order 12291, “Federal Regulation,” 46 Federal Register 13193, February 19, 1981. Section 3 of this
executive order required covered agencies to “prepare, and to the extent permitted by law consider, a Regulatory
Impact Analysis” for their “major” rules (e.g., rules expected to have an annual effect on the economy of $100 million
or more).
33
Section 3(b) of Executive Order 12866 defines an “agency” as in 44 U.S.C. § 3502(1), excluding independent
regulatory agencies as defined in 44 U.S.C. § 3502(10), “unless otherwise indicated.” The only portions of the
executive order that apply to independent regulatory agencies are the planning mechanisms in Section 4(b) and Section
4(c). In a memorandum to agencies, Sally Katzen, then Administrator of OIRA, said that “while the President’s
‘Statement of Regulatory Philosophy and Principles’ (Sec. 1) applies by its terms only to those agencies that are not
independent, the IRCs are requested on a voluntary basis to adhere to the provisions that may be pertinent to their
activities.” See
http://www.whitehouse.gov/sites/default/files/omb/assets/inforeg/eo12866_implementation_guidance.pdf for a copy of
this memorandum.
34
The requirement that agencies adopt regulations only if the benefits “justify” the costs is seen as a somewhat
different threshold than the one in Executive Order 12291, which had required agencies to determine that regulatory
benefits “outweigh” the costs.

14

objectives, taking into account, among other things, and to the extent practicable,
the costs of cumulative regulations.”
a)

Analytical Requirements

The primary analytical requirements in EO 12866 are in Section 6(a)(3) of the executive
order. For each “significant” regulatory action (during recent years, an average of more
than 600 proposed rules, final rules, and other actions per year),35 covered agencies
(Cabinet departments and independent agencies, but not independent regulatory agencies)
are generally required to provide to OIRA:
An assessment of the potential costs and benefits of the regulatory action, including an
explanation of the manner in which the regulatory action is consistent with a statutory
mandate and, to the extent permitted by law, promotes the President's priorities and
avoids undue interference with State, local, and tribal governments in the exercise of their
governmental functions.36

OIRA does not consider this “assessment” language to require a formal cost-benefit
analysis. However, for each “economically significant” regulatory action (an average of
about 120 actions each year during recent years),37 the executive order’s requirements are
more detailed. Agencies are generally required to provide OIRA with the above
information, as well as the following:
i. An assessment, including the underlying analysis, of benefits anticipated from the
regulatory action (such as, but not limited to, the promotion of the efficient functioning of
the economy and private markets, the enhancement of health and safety, the protection of
the natural environment, and the elimination or reduction of discrimination or bias)
together with, to the extent feasible, a quantification of those benefits;
ii. An assessment, including the underlying analysis, of costs anticipated from the
regulatory action (such as, but not limited to, the direct cost both to the government in
administering the regulation and to businesses and others in complying with the
regulation, and any adverse effects on the efficient functioning of the economy, private
markets (including productivity, employment, and competitiveness), health, safety, and
the natural environment), together with, to the extent feasible, a quantification of those
costs; and
iii. An assessment, including the underlying analysis, of costs and benefits of potentially
effective and reasonably feasible alternatives to the planned regulation, identified by the
agencies or the public (including improving the current regulation and reasonably viable
nonregulatory actions), and an explanation why the planned regulatory action is
preferable to the identified potential alternatives.38

This language has been interpreted by OIRA to require a formal cost-benefit or other type
of economic analysis.
35

Data on the number of reviews are available at http://www.reginfo.gov/public/do/eoCountsSearch.
Section 6(a)(3)(B) of EO 12866.
37
According to the OMB review database (http://www.reginfo.gov/public/do/eoCountsSearch), OIRA reviewed 600
economically significant regulatory actions between January 1, 2007, and December 31, 2011, for an average of 120
per year.
38
Section 6(a)(3)(C) of EO 12866.
36

15

b)

OMB Circular A-4

The analytical requirements in EO 12866 are further elaborated in OMB Circular A-4,39
which says a good economic analysis contains three basic elements: (1) a statement of the
need for the proposed action, (2) an examination of alternative approaches, and (3) an
evaluation of the benefits and costs—quantitative and qualitative—of the proposed action
and the main alternatives identified by the analysis.


With regard to need, Circular A-4 states that the agency should describe the
statutory or judicial directives that authorize the action, and describe the problem
that it intends to address. The underlying problem can involve a market failure
(e.g., a monopoly that adversely affects consumers, or inadequate information
about a product) or other social purposes (e.g., to combat discrimination).



After determining that federal regulation is needed, Circular A-4 requires the
agency to consider a reasonable number of alternative regulatory approaches
available within the statutory authority provided to the agency. For example, the
circular says agencies should consider different compliance dates, enforcement
methods, levels of stringency, requirements based on firm size or geographic
region; performance standards instead of design standards, market approaches
instead of direct controls; and informational measures instead of regulation. The
agency should also consider other alternatives to federal regulation, including the
option of state or local regulation.



With regard to analytical approaches, the circular says agencies should consider
using both cost-benefit analysis and cost-effectiveness analysis.40 When all
benefits and costs can be expressed in monetary units, cost-benefit analysis can
clearly indicate which approach is most efficient in terms of net benefits.41
However, in many (and perhaps most) cases, agencies are not able to express all
of the benefits or costs in monetary units. In such cases, Circular A-4 states that
cost-benefit analysis “is less useful, and it can even be misleading, because the
calculation of net benefits in such cases does not provide a full evaluation of all
relevant benefits and costs.”42 Analysts should therefore attempt to quantify
benefits or costs as much as possible (e.g., tons of pollution avoided, or the

39

OMB Circular A-4, September 17, 2003, available at
http://www.whitehouse.gov/sites/default/files/omb/assets/omb/circulars/a004/a-4.pdf. The circular took effect for
“economically significant” proposed rules on January 1, 2004, and for “economically significant” final rules on January
1, 2005.
40
According to Circular A-4 (p. 11), cost-effectiveness analysis “can provide a rigorous way to identify options that
achieve the most effective use of the resources available without requiring monetization of all of relevant benefits or
costs. Generally, cost-effectiveness analysis is designed to compare a set of regulatory actions with the same primary
outcome (e.g., an increase in the acres of wetlands protected) or multiple outcomes that can be integrated into a single
numerical index (e.g., units of health improvement).”
41
For example, if Option A has expected costs of $100 million and expected benefits of $200 million, the net benefits
are $100 million. If Option B has expected costs of $200 million, and expected benefits of $400 million, the net
benefits are $200 million. In this scenario, Option B produces the largest net benefits.
42
OMB Circular A-4, p. 10.

16

number of children who will not suffer discrimination), and “exercise professional
judgment” in determining whether non-quantified factors are important enough to
justify consideration of the regulation. The circular also indicates that costeffectiveness analysis must be used with care.43
The circular also requires an “accounting statement” with tables reporting benefit and
cost estimates for each major final rule. For rules involving annual economic effects of
$1 billion or more, the circular says agencies should present a “formal quantitative
analysis of the relevant uncertainties about benefits and costs,” including estimates of the
central tendency (e.g., mean and median), ranges, and other characteristics of the
distribution.

c)

Supplemental Publications

The Obama Administration has published several documents that supplement, but do not
change, these requirements. On October 28, 2010, OMB published an agency checklist
for the regulatory impact analyses required by EO 12866 and Circular A-4.44 It contains
repeated references to provisions in the executive order and the circular, and states that
nothing in the checklist “alters, adds to, or reformulates existing requirements in any
way.” Among other things, the checklist asks whether the agency’s analysis (1) has a
reasonably detailed description of the need for the regulatory action, (2) explains how the
action will meet that need, (3) quantifies and monetizes the expected costs and benefits of
the action to the extent feasible, (4) explains and supports a reasoned justification that the
benefits of the regulatory action justify the costs, (5) assesses the potentially effective and
reasonable alternatives to the action (including at least one alternative that is more
stringent and less stringent), and (6) explains why the planned regulatory action is
preferable to those alternatives.
On January 18, 2011, President Obama issued Executive Order 13563 on “Improving
Regulation and Regulatory Review.”45 The executive order is described as “supplemental
to and reaffirms the principles, structures, and definitions governing contemporary
regulatory review that were established in EO 12866 of September 30, 1993.” It
reiterates many of the principles in the 1993 executive order (e.g., that benefits should
“justify” costs, and that agencies should select the regulatory alternative that maximizes
net benefits). The primary new element was a requirement that agencies develop a plan
for the retrospective review of their existing regulations to determine if any should be
modified, streamlined, expanded, or repealed. The order defined a covered agency in the
same way as Executive Order 12866, and therefore did not apply to independent
regulatory agencies.

43

For example, the circular states that the “alternative that exhibits the smallest cost-effectiveness ratio may not be the
best option, just as the alternative with the highest benefit-cost ratio is not always the one that maximizes net benefits.”
44
See http://www.whitehouse.gov/sites/default/files/omb/inforeg/regpol/RIA_Checklist.pdf for a copy of the checklist.
45
Executive Order 13563, “Improving Regulation and Regulatory Review,” 76 Federal Register 3821, January 21,
2011.

17

On July 11, 2011, President Obama issued Executive Order 13579 requesting, but not
requiring, independent regulatory agencies to follow the principles in EO 13563 “to the
extent permitted by law.” Section l(a) of the executive order states that, “to the extent
permitted by law, [regulatory] decisions should be made only after consideration of their
costs and benefits (both quantitative and qualitative).” The executive order also
instructed each of those agencies to develop plans for the review of its existing rules,
“consistent with law and reflecting its resources and regulatory priorities and
processes.”46 On July 22, 2011, the OIRA Administrator issued a memorandum to the
heads of independent regulatory agencies providing guidance on the implementation of
Executive Order 13579.47 Among other things, the memorandum states “agencies may
well find it useful to engage in a retrospective analysis of the costs and benefits (both
quantitative and qualitative) of regulations chosen for review. Such analyses can inform
judgments about whether to modify, expand, streamline, or repeal such regulations, and
can also provide valuable insight on the strengths and weaknesses of pre-regulatory
assessments, which can be used to enhance the agency's analytic capability.”48
On February 7, 2011, OMB published a document entitled “Regulatory Impact Analysis:
Frequently Asked Questions.”49 Again, OMB said “nothing said here is meant to alter
existing requirements in any way.” Among other things, OMB indicated that:


A rule may be considered “economically significant” if it expected to have $100
million in costs, benefits, or budgetary “transfers” in any one year (e.g., federal
grants, food stamps, Medicare or Medicaid reimbursements, and crop payments),
and rules that do not cross that threshold but adversely affect a small sector of the
economy and would threaten to create significant job loss would still be
considered “economically significant.”



Agencies’ regulatory impact analyses should be presented in plain language, and
should include a clear executive summary of their central conclusions and an
accounting statement with a table summarizing the expected costs, benefits, and
transfers.



When considering regulatory alternatives, agencies should begin by asking
whether to regulate at all, and should consider deferring to regulation at the state
or local level. If federal regulation is needed, agencies should consider analyzing
at least three options: the preferred option, a more stringent option, and a less
stringent one. Agencies should also generally include a sensitivity analysis
showing how results can vary with changes in assumptions, data, and analytical
approaches.

46

Executive Order 13579, “Regulation and Independent Regulatory Agencies,” 76 Federal Register 41587, July 14,
2011.
47
See http://www.whitehouse.gov/sites/default/files/omb/memoranda/2011/m11-28.pdf for a copy of this
memorandum.
48
Ibid., p. 5.
49
See http://www.whitehouse.gov/sites/default/files/omb/circulars/a004/a-4_FAQ.pdf for a copy of this document.

18

d)

EO 12866/Circular A-4 in Practice

EO 12866 and Circular A-4 appear to have a substantial effect on rulemaking within the
covered departments and agencies. Of the 100 major rules issued in 2010, 83 were issued
by non-independent regulatory agencies covered by the executive order. Of these, the
agencies mentioned EO 12866 in all 83 rules, and prepared some type of regulatory
analysis in 73 of the rules.50 Unlike some other crosscutting analytical requirements, EO
12866 does not give the agencies substantial discretion to decide whether the
requirements are triggered, and does not exempt final rules that are issued without a
notice of proposed rulemaking.

2.

Unfunded Mandates Reform Act

Section 202 of UMRA requires covered agencies (Cabinet departments and independent
agencies, but not independent regulatory agencies) to, among other things, prepare a
written statement containing specific descriptions and estimates for any proposed rule or
any final rule for which a proposed rule was published that includes any federal mandate
that may result in the expenditure of $100 million or more (indexed for inflation) in any
year by state, local, or tribal governments, in the aggregate, or the private sector. The
written statement is to contain (among other things) a “qualitative and quantitative
assessment of the anticipated costs and benefits ... as well as the effect of the Federal
mandate on health, safety, and the natural environment.” It is also generally required to
include estimates of future compliance costs, and any disproportionate budgetary effects
on particular regions, governments, or segments of the private sector, and estimates of
effects on the national economy, including effects on job creation, productivity, full
employment, and international competitiveness. Also, Section 205 of UMRA generally
requires agencies preparing a written statement to “identify and consider a reasonable
number of regulatory alternatives and from those alternatives select the least costly, most
cost-effective or least burdensome alternative that achieves the objectives of the rule,” or
explain why the least costly, most cost-effective or least burdensome method of achieving
the objectives of the rule was not adopted, or why the provisions are inconsistent with
law. However, UMRA’s analytical requirements do not apply if the agency issues the
final rule without a previous notice of proposed rulemaking, if the rule is not considered a
“mandate” (e.g., a condition of federal financial assistance, or a duty arising from
participation in a voluntary federal program); if it incorporates requirements specifically
set forth in law; and for various other reasons.

a)

UMRA in Practice

50

These data, and those in subsequent sections of the report citing the major rules issued in 2010, are drawn from the
author’s previous report for ACUS. See http://www.acus.gov/wp-content/uploads/downloads/2012/03/COR-CopelandReport-CIRCULATED.pdf for a copy of this report.

19

In practice, UMRA seldom results in regulatory analyses that are not already required by
EO 12866. Because of numerous exceptions and exclusions in the Act, the set of rules
that are subject to UMRA’s analytical requirements are a subset of the rules that are
subject to the analytical requirements in EO 12866. In 1998, GAO reported that 78 of the
110 economically significant final rules issued in the first two years of UMRA’s
implementation did not require a written statement for one or more reasons.51 In 2004,
GAO said that federal agencies identified only 9 of the 122 major and/or economically
significant rules published in 2001 or 2002 as containing mandates under UMRA. 52
GAO also reported that 65 of the 113 rules that had not triggered UMRA had impacts on
nonfederal parties that those affected might perceive as unfunded mandates. In February
2011 congressional testimony, GAO reiterated these conclusions, noting that there are 14
reasons why a rule would not be considered a “mandate” under UMRA.53
Of the 100 major rules issued in 2010, the agencies prepared a written statement pursuant
to Section 202 of UMRA in only 4 rules. In the remaining rules, the agencies either did
not mention the statute at all (23 rules), referred to another analysis as satisfying the
requirements of UMRA (9 rules), or cited one of the many exemptions and exceptions to
UMRA coverage, such as no “expenditures” of at least $100 million in a year (30 rules),
no UMRA “mandate” as defined in the Act (16 rules), or no prior notice of proposed
rulemaking (9 rules).

B.

Presidential Authority

Although scholars have long debated the limits of presidential authority in rulemaking,54
it is unclear whether the President currently has the constitutional or statutory authority to
unilaterally direct independent regulatory agencies to prepare cost-benefit or other types
of economic analyses before issuing certain rules.55 Over the years, various observers
have cited legal opinions reportedly written by the Office of Legal Counsel (OLC) within
the Department of Justice that supposedly state that the President already has this
authority, based on his Article II responsibility to “take Care that the Laws are faithfully
executed.”56 A common refrain is that President Reagan and President Clinton decided
not to extend the analytical requirements in EO 12291 and EO 12866 to independent
regulatory agencies for political, not legal, reasons. For example, in April 2011, Sally
Katzen, OIRA Administrator during the Clinton Administration and one of the authors of
EO 12866, said that both President Reagan and President Clinton consulted the
Department of Justice and decided not to include independent regulatory agencies in their
executive orders requiring cost-benefit analysis “not because they did not have the
authority to do so, but rather for political reasons.”57 She went on to say that “[w]ith the
51

U.S. General Accounting Office, Unfunded Mandates: Reform Act Has Had Little Effect on Agencies’ Rulemaking
Actions, GAO/GGD-98-30, February 4, 1998.
52
U.S. General Accounting Office, Unfunded Mandates: Analysis of Reform Act Coverage, GAO-04-637, May 12,
2004.
53
Testimony of Denise M. Fantone, Director, Strategic Issues, U.S. Government Accountability Office, before the
Subcommittee on Technology, Information Policy, Intergovernmental Relations and Procurement Reform, House
Committee on Oversight of Government Management, available at http://www.gao.gov/products/GAO-11-385T.

20

benefit of hindsight, presidential advisers today might reach a different judgment.”58 In
September 2012, seven former OIRA Administrators sent a letter to the Chairman of the
Senate Committee on Homeland Security and Governmental Affairs stating (in part) that
“[l]egal advisors to both President Reagan and President Clinton concluded that the
president has the legal power to extend these requirements to independent agencies, but
both presidents chose not to do so out of deference to Congress.”59 However, the letter
did not cite any particular OLC opinion in support of this statement.
A review of publicly available OLC opinions60 indicated that the only opinion issued
during the Reagan or Clinton Administrations that directly addressed this subject was
issued on February 13, 1981.61 If anything, this opinion supports the opposite proposition
– i.e., that independent regulatory agencies are less subject to presidential direction than
other types of agencies. In its only reference to independent regulatory agencies, the
opinion stated that:
[I]t is unclear to what extent Congress may insulate Executive agencies from presidential
supervision. Congress is also aware of the comparative insulation given to the
independent regulatory agencies, and it has delegated rulemaking authority to such
agencies when it has sought to minimize presidential interference. By contrast, the heads
of non-independent agencies hold their positions at the pleasure of the President, who
may remove them from office for any reason. It would be anomalous to attribute to
54

See, for example, Christopher S. Yoo, Steven G. Calabresi, Anthony J. Colangelo, “The Unitary Executive in the
Modern Era, 1945-2004,” Iowa Law Review, vol. 90 (Jan. 2005), pp. 601- 731; Robert Percival, “Presidential
Management of the Administrative State: The Not-So Unitary Executive,” Duke Law Journal, vol. 51 (December
2001), pp. 963-1013; Peter L. Strauss, “Overseer, or ‘The Decider’: The President in Administrative Law,” George
Washington University Law Review, vol. 75 (2007), pp. 696-760; Thomas O. Sargentich, “The Emphasis on the
Presidency in U.S. Public Law: An Essay Critiquing Presidential Administration,” Administrative Law Review, vol. 59
(2007), pp. 1-36; and Elena Kagan, “Presidential Administration,” Harvard Law Review, vol. 114 (June 2001), pp.
2245- 2385.
55
See letter from Jim Tozzi, Center for Regulatory Effectiveness, to John Morall, Office of Management and Budget,
January 24, 2002, available at
http://www.whitehouse.gov/sites/default/files/omb/assets/omb/inforeg/comments/comment83.pdf. Mr. Tozzi cites the
January 13, 1981, OLC opinion, and says “It unclear whether it would be constitutionally permissible to apply the
requirements of an Executive Order 12291or 12866 to independent agencies.” See also Kirti Datla and Richard L.
Revesz, “Deconstructing Independent Agencies (And Executive Agencies),” New York University Public Law and
Legal Theory Working Papers, Paper 350, (2012), which asserts that there is no legal or constitutional barrier to the
extension of the executive order’s requirements to independent regulatory agencies, but also characterizes the current
state of affairs in this area as “unclear.”
56
See, for example, Christopher C. DeMuth and Douglas H. Ginsburg, “Commentary: White House Review of
Agency Rulemaking,” Harvard Law Review, volume 99 (March 1986), pp. 1075-1088, at note 13, available at
http://www.thecre.com/pdf/20110620_OMB_Review_DeMuth_Ginsburg.pdf.
57
See http://www.rff.org/Documents/Events/Workshops%20and%20Conferences/
110407_Regulation_KatzenRemarks.pdf for Ms. Katzen’s comments. To view the Department of Justice
memorandum during the Reagan Administration, see http://www.thecre.com/pdf/DJMemoReaganEO12291PDF.pdf.
As discussed later in this report, the final version of this memorandum does not clearly state that the President could
require independent regulatory agencies to engage in cost-benefit or other types of economic analysis.
58
Ms. Katzen repeated those sentiments at a March 21, 2012, congressional hearing before the Subcommittee on
Courts, Commercial and Administrative Law, House Committee on the Judiciary. See
http://judiciary.house.gov/hearings/Hearings%202012/Katzen03212012.pdf, p. 4.
59
See http://portman.senate.gov/public/index.cfm/files/serve?File_id=563c60e4-3770-4329-b1aa-ff51752cd750 for a
copy of the letter.
60
See http://www.justice.gov/olc/memoranda-opinions.html for opinions back to 1992. Other searches of OLC
opinions were performed using Westlaw and Lexis-Nexis.
61
See http://thecre.com/pdf/DJMemoReaganEO12291PDF.pdf for a copy of this memorandum.

21

Congress an intention to immunize from presidential supervision those who are, by force
of Art. II, subject to removal when their performance in exercising their statutory duties
displeases the President.

1.

A February 12, 1981, Document

Some of those who have written and commented on this issue have cited an OLC opinion
dated February 12, 1981 – the day before the above-mentioned opinion.62 However, the
February 12 document may not be a formally issued OLC opinion. It was first mentioned
during a June 1981 hearing on “The Role of OMB in Regulation,” when then-OMB
Director James Miller cited it as support for the potential application of Executive Order
12291 to independent regulatory agencies.63 When Mr. Miller and then-White House
Counsel C. Boyden Gray expressed reluctance to provide the OLC opinion (because the
executive order as issued did not cover independent regulatory agencies), Subcommittee
Chairman John Dingell instructed them to do so “at your earliest convenience.” At that
point, Mr. Miller said his earlier answer “was predicated on a citation of the wrong
opinion. The opinion I had in mind was the one that went with the Executive order.
There was an earlier opinion that I think….” (Emphasis added.) Mr. Dingell then said
“All right. In order to be helpful to you, we will take both documents.” The hearing
record includes a copy of the February 12 document as well as the February 13 OLC
opinion that was later included in the Reagan Administration’s regulatory plan,64 and
which has been cited by those who worked at OMB at the time.65 Citations to the
February 12 document almost always directly or indirectly reference this June 1981
hearing record.66
62

See, for example, American Bar Association, Section of Administrative Law and Regulatory Practice, Letter to
OIRA, March 16, 2009 (hereafter, “Administrative Law Section Letter”), available at
http://www.reginfo.gov/public/jsp/EO/fedRegReview/ABANET_comments.pdf; and CRS Report R42720, Presidential
Review of Independent Regulatory Commission Rulemaking: Legal Issues, by Vivian S. Chu and Daniel T. Shedd,
September 10, 2012, available at http://www.fas.org/sgp/crs/misc/R42720.pdf. A copy of this February 12 document is
available from the author of this report.
63
U.S. House of Representatives, Hearing before the Subcommittee on Oversight and Investigations of the Committee
on Energy and Commerce, “Role of OMB in Regulation,” 97th Congress, First Session, June 18, 1981, Serial No. 9770, pp. 100-101. Mr. Miller was asked about a statement in an April 1981 issue of Regulation magazine in which he
said the Reagan Administration chose not to apply EO 12291 to independent regulatory agencies for policy, not legal,
reasons.
64
See http://www.regulatorycheckbook.org/uploads/7/1/7/4/7174353/simms_1981_olc_memo_on_eo_12291.pdf.
65
See, for example, The Center for Regulatory Effectiveness, “A Blueprint for OMB Review of Independent Agency
Regulations,” March 2002, written by Jim Tozzi, available at http://www.thecre.com/pdf/blueprint.pdf; and Douglas H.
Ginsburg, “White House Review of Agency Rulemaking,” footnote 10, available at
http://www.thecre.com/pdf/20110529_White%20House%20Review%20of%20Agency%20Rulemaking.pdf.
66
See, for example, Administrative Law Section Letter, which cites the opinion (in footnote 30) as “Memorandum for
the Hon. David Stockman, Dir., Office of Mgmt. & Budget, from Larry L. Simms, Acting Ass't Atty. Gen., Office of
Legal Counsel 7 (Feb. 12, 1981), reprinted in Role of OMB in Regulation: Hearing Before the Subcomm. on Oversight
and Investigations of the House Comm. on Energy and Commerce, 97th Cong., 1st Sess. 158 (1981) (“[U]nder the best
view of the law” the proposed executive order, eventually issued as Exec. Order No. 12,291 “can be imposed on the
independent agencies.”); and CRS Report R42720, which cites the opinion (in footnote 102) as “Mem. for the Hon.
David Stockman, Director of OMB, from Larry L. Simms, Acting Ass’t Atty. Gen., Off. of Legal Counsel 7 (Feb. 12,
1981), reprinted in Role of OMB in Regulation: Hearing Before the Subcomm. on Oversight and Investigations of the
H. Comm. on Energy and Commerce, 97th Cong., 1st Sess. 158 (1981) [hereinafter Second 1981 OLC Opinion].”

22

The February 12 document contains a six-page section on “Independent Regulatory
Commissions” that was eliminated from the OLC opinion that was issued on February
13. Perhaps the clearest indication that the February 12 document may not be an issued
OLC opinion, and therefore should not be cited as such, is that it states that the proposed
executive order (what would become EO 12291) would require independent regulatory
agencies to prepare regulatory impact analyses before issuing certain rules. However, the
executive order as published in the Federal Register (less than a week later, on February
17, 1981) and in the official list of executive orders does not contain that requirement.67
During the June 1981 hearing on the “Role of OMB in Regulation,” Mr. Gray noted that
fact as a reason why it was not appropriate to release the “earlier opinion” (i.e., the
February 12 document) to the congressional committee.68
Also, the February 12 document states that “under the best view of the law, these and
other requirements of the Order can be imposed on the independent agencies.” Those
citing the February 12 document sometimes quote that sentence.69 However, the
February 12 document goes on to say that “an attempt to exercise supervision of these
agencies through techniques such as those in the proposed Order would be lawful only if
the Supreme Court is prepared to repudiate certain expansive dicta in the leading case on
the subject.” As a result of this language, the authors of a 2012 paper (which supported
the extension of executive order requirements to independent regulatory agencies)
characterized the February 12 document’s conclusion as “tentative,” and said “it is likely
that the uncertainty of the legal question has deterred presidents from requiring
participation of the independent [regulatory] agencies.”70 The February 12 document
also stated that “an attempt to infringe the autonomy of the independent agencies is very
likely to produce a confrontation with Congress, which has historically been jealous of its
prerogatives with regard to them.”
2.

An Earlier OLC Opinion

Although the February 13, 1981, OLC opinion appears to be the only one officially
issued since the start of the Reagan Administration to address (albeit inconclusively) the
issue of presidential authority over independent regulatory agency rulemaking, there was
at least one OLC opinion regarding this issue nearly four years earlier during the Carter
Administration. In a July 22, 1977, opinion, OLC responded to a request from the
Associate Director of the Domestic Counsel asking “whether President by Executive
order has the authority to extend to the independent regulatory agencies proposals
67

46 Federal Register 13193. Section 1(d) of EO 12291 defines a covered “agency” as “any authority of the United
States that is an ‘agency’ under 44 U.S.C. 3502(1), excluding those agencies specified in 44 U.S.C. 3502(10).”
Therefore, independent regulatory agencies are not covered by any of the executive order’s requirements.
68
On p. 100 of the previously mentioned hearing record, Mr. Gray stated “I do not think it would be appropriate to
release that opinion until such time as we extend the Executive order to the independent agencies, since the Executive
order does not apply to the independent agencies.”
69
See, for example, the Section on Administrative Law Letter, footnote 30.
70
Kirti Datla and Richard L. Revesz, “Deconstructing Independent Agencies (And Executive Agencies),” New York
University Public Law and Legal Theory Working Papers, Paper 350, (2012), p. 3.

23

designed to improve administrative processes within the Executive branch.” In its
opinion, OLC said:
it would appear that the proposals contained in Part I of your memorandum can be
extended by the President to the independent regulatory agencies. The purpose of the
proposals is to improve procedure, set up work schedules and plans for the more efficient
discharge of the agencies’ duties, and improve the proficiency of personnel by
appropriate training programs directed to the drafting of regulations. In the light of the
President’s overall fiscal responsibilities it also appears appropriate for him to require
that the agencies take into account the economic impact of their decisions, although he
probably cannot dictate the precise effect the agencies are to give to that impact. 71

In a March 1978 memorandum for the President regarding the signing of what would
later become Executive Order 12044, then-OMB Director James T. McIntyre stated that
the relationship of the President to independent regulatory agencies “has long been the
subject of dispute.” He went on to say the following:
There is, however, no clear legal definition of the extent to which a President may direct
the activities of an independent commission through Executive Orders. The Department
of Justice is of the opinion that the President has the constitutional and statutory authority
to require independent agencies to comply with the procedural reforms in this Executive
Order. That view is strongly contested by all but one of the independent agencies that
commented (the Nuclear Regulatory Commission made no objection), and by many
Senators and Congressmen. 72

Ultimately, however, the McIntyre memorandum recommended that independent
regulatory agencies be excluded from the language of the executive order because doing
so “would provoke a confrontation with the Congress and attract attention away from the
substantial improvements the Order can make in the management of regulation in the
Executive Branch.”
It bears noting that the “procedural reforms” in EO 12044 were relatively modest when
compared to those in EO 12291. For example, the requirement in EO 12291 that
agencies choose the least costly approach to a particular regulatory objective went further
than the requirement in EO 12044, which simply required agencies to analyze and
consider alternative regulatory approaches. Also, the regulatory oversight functions were
divided among many offices during the Carter Administration – OMB, the Council on
Wage and Price Stability (CWPS), a Regulatory Analysis Review Group (RARG), and a
“regulatory council,” whereas Executive Order 12291 consolidated these functions within
OIRA. Another major difference was the amount of influence that OIRA had compared
to its predecessors. Under EO 12044, CWPS and RARG had primarily an advisory role.
In contrast, under EO 12291, OIRA could overrule agency determinations regarding
whether the rule was “major” (and therefore required a regulatory impact analysis), and
71

Memorandum for Simon Lazarus, Associate Director, Domestic Counsel, from John M. Harmon, Assistant Attorney
General, Office of Legal Counsel, “President’s Authority to impose procedural reforms on the Independent Regulatory
Agencies,” July 22, 1977, available at http://www.thecre.com/pdf/Carter_DOJOpinion072277.PDF. The opinion went
on to say, however, that a presidential requirement that independent regulatory agencies conduct a general review of
their substantive rules “could well be considered to constitute an invasion of the agencies’ quasi-legislative autonomy.”
72
See http://www.thecre.com/pdf/Carter_OMBMemoMarch1978.PDF for a copy of this memorandum.

24

could delay the regulation until the agency had adequately responded to its concerns (e.g.,
if it believed the agency had not considered all reasonable alternatives, that its analysis
was not sound, or that it was contrary to administration policy). OIRA’s significant
influence on rulemaking was underscored by its organizational position within OMB—
the agency that reviews and approves the rulemaking agencies’ budget requests.
Finally, and perhaps most importantly, the nature and transparency of the review process
was significantly different under EO 12291. Under the Carter Administration’s approach,
RARG and CWPS prepared and filed comments on agencies’ regulatory proposals during
the formal public comment period, after they were published in the Federal Register. In
the case of RARG filings, a draft of the comments was circulated to all RARG members,
and the comments and any dissents were placed in the public record at the close of the
comment period. In contrast, OIRA’s reviews occurred before the rules were published
for comment, and EO 12291 did not require that OIRA’s comments on the draft rule be
disclosed. This pre-publication review process made OIRA’s regulatory reviews under
EO 12291 qualitatively different than in EO 12044.
Given the context of the 1977 OLC opinion, citation of that opinion 35 years later in a
somewhat different context could be problematic. Even if requiring independent
regulatory agencies to prepare cost-benefit analyses is viewed as a “procedural”
requirement, doing so in the context of OIRA review and possible reversal of an agency
rule because of that review or failure to comply with those analytical requirements might
be considered a substantive directive.
3.

A Congressional Grant of Authority

Although it is unclear whether the President currently has the authority to require
independent regulatory agencies to prepare cost-benefit analyses before issuing a
proposed or final rule, it seems clear that Congress could provide the President with that
authority. In a March 9, 1995, memorandum for the Attorney General regarding the
legality of an executive order issued pursuant to a statute,73 the Office of Legal Counsel
said “The Supreme Court has instructed that ‘[t]he President's power, if any, to issue [an]
order must stem either from an act of Congress or from the Constitution itself.’
Youngstown Sheet & Tube Co. v. Sawyer, 343 U.S. 579, 585 (1952).” In this case, OLC
said that the President's authority to issue Executive Order 12954 was statutory;
specifically, the Federal Property and Administrative Services Act of 1949 (40 U.S.C.
§ 471), which said “The President may prescribe such policies and directives, not
inconsistent with the provisions of this Act, as he shall deem necessary to effectuate the
provisions of said Act.” 74 Therefore, the opinion said an executive order issued pursuant
to this authorization would be valid as long as the President acted to “effectuate” the
provisions of the underlying statute, and as long as those actions were not inconsistent
with any specific provisions of the statute. In the Youngstown Sheet & Tube Co. case,
73
74

See http://www.justice.gov/olc/eostrike.htm.
40 U.S.C. § 486(a).

25

Justice Jackson’s opinion concurring in the judgment indicated that the President’s
authority is strongest when acting with the express or implied authorization of
Congress.75 Surely, an executive order issued pursuant to an express grant of statutory
authority would fall into this area, and the burden of proof would fall to those who would
question that authority.
However, providing the President with the statutory authority to issue an executive order
requiring independent regulatory agencies to prepare cost-benefit analyses before issuing
certain rules would make independent regulatory agencies less independent of the
President than is currently the case. Such action would also represent a transfer of power
from Congress to the President in an arena that various Presidents have been asserting
power for more than 30 years.76 Any such congressional grant of authority could,
however, be limited by the way the authority is structured (e.g., making clear that the
result of any such analysis does not constitute a “supermandate” that trumps existing
statutory requirements, or by describing how any such analyses should be conducted).77

C.

Legislative Initiatives

Several bills introduced during the 112th Congress would have required all or certain
independent regulatory agencies to prepare cost-benefit or other types of analyses for
their forthcoming rules. For example:


H.R. 373, the Unfunded Mandates Information and Transparency Act of 2011,
would (among other things) have required independent regulatory analyses
to perform the economic analyses required by UMRA.



S. 358, the Regulatory Responsibility for Our Economy Act of 2011, would
have put into statute many of the broad regulatory goals enunciated in EO
12866 (e.g., that federal agencies should adopt regulations only upon a
reasoned determination that the benefits justify the costs, tailor regulations
to accomplish regulatory objectives while imposing the least burden on
society, select regulatory approaches that maximize net benefits, and allow

75

343 U.S. 579, 635 (1952) (“When the President acts pursuant to an express or implied authorization of Congress, his
authority is at its maximum, for it includes all that he possesses in his own right plus all that Congress can delegate.”).
76
See, for example, Morton Rosenberg, “Beyond the Limits of Executive Power: Presidential Control of Agency
Rulemaking Under Executive Order 12291,” Michigan Law Review, vol. 80 (1981), pp. 193-247; and CRS Report
RL33862, Changes to the OMB Regulatory Review Process by Executive Order 13422, by Curtis W. Copeland,
January 3, 2008, which characterized the changes made by the executive order as “a clear expansion of presidential
authority over rulemaking agencies.”
77
For example, Section 3(a) of S. 3468 states that independent regulatory agencies may be required to comply with
regulatory analysis requirements applicable to other agencies “to the extent permitted by law.” NRC officials said it
was not clear whether this language would require cost-benefit analysis for the agency’s fee structure rules (in which
the agency is statutorily required to collect 90% of operating expenses), or for “adequate protection” rules that currently
are not required to have an analysis, and for which courts have ruled the agency cannot take costs into consideration in
setting such levels of protection.

26

for public participation).78 The bill defined a covered “agency” to include
independent regulatory agencies.


S. 602, the “Clearing Unnecessary Regulatory Burdens (CURB) Act,” would
have codified and expanded the cost-benefit analysis requirements that are
currently in EO 12866. Specifically, the bill would generally have required all
agencies (including independent regulatory agencies) to quantify regulatory
benefits and costs of their “significant” rules “to the extent feasible,” and to
assess the costs and benefits “potentially effective and reasonably feasible
alternatives to the planned significant regulatory action.”



S. 817, the Independent Agencies and the Unfunded Mandates Reform Act,
would have amended the Congressional Budget and Impoundment Control
Act of 1974 (as amended UMRA) and changed the definition of an “agency” to
include independent regulatory agencies. However, the bill would have
exempted “rules that concern monetary policy proposed or implemented by
the Board of Governors of the Federal Reserve System or the Federal Open
Market Committee.”



S. 1615, the “Financial Regulatory Responsibility Act of 2011,” would have
(among other things) (1) prohibited 10 federal financial regulatory agencies
(including the SEC, CFTC, CFPB, FDIC, and the Federal Reserve System) from
issuing proposed or final rules unless specified analyses have been included
in them; (2) prohibited the agencies from publishing any final rule if the
agency determines that the quantified costs are greater than the quantified
benefits; (3) required the agencies to make available on their websites
sufficient information about the data, methodologies, and assumptions used
to allow reproduction of the analyses; and (4) required the chief economist of
each agency to report to certain congressional committees within five years
on the economic impact of the regulations.



H.R. 1840 would have amended Section 15(a) of the Commodity Exchange
Act (7 U.S.C. § 19(a)) to require CFTC (1) to consider the costs and benefits,
both qualitative and quantitative, of an intended regulation; and (2) to
propose or adopt a regulation only on a reasoned determination that the
benefits justify the costs. In making the cost-benefit determination, the
agency would have been required to consider such factors as the impact on
market liquidity in the futures and swaps markets, as well as alternatives to
direct regulation.

78

Exempt from these principles and other requirements in the bill are regulations that (1) are issued through formal
rulemaking procedures in 5 U.S.C. § 556 and 5 U.S.C. § 557; (2) pertain to military or foreign affairs functions, other
than procurement regulations and regulations involving the import or export of non-defense articles or services; and (3)
are limited to agency organization, management, or personnel matters.

27



H.R. 2289, the “FCC ABCs Act,” would have amended the Communications Act
of 1934 (47 U.S.C. § 154) and required the FCC to include in each proposed
and final rule an analysis of the benefits and costs. However, the bill
specifically states that it does not authorize any appropriations for the
express purpose of carrying out these analyses.



H.R. 3309 would have required the FCC, before adopting or amending an
“economically significant” rule, to: (1) analyze the specified market failure,
actual consumer harm, burden of existing regulation, or failure of public
institutions that warrants the rule or amendment; and (2) determine that the
benefits justify its costs.



The SEC Regulatory Accountability Act (H.R. 2308 and S. 2373) would have
amended Section 23 of the Securities Exchange Act of 1934 (15 U.S.C. § 78w)
and required the SEC to (among other things) (1) identify and evaluate the
significance of the problem that the proposed regulation is designed to
address in order to assess whether any new regulation is warranted; and (2)
use the SEC Chief Economist to assess the costs and benefits of the intended
regulation and adopt it only upon a reasoned determination that its benefits
justify the costs.



The Regulatory Accountability Act (H.R. 3010) would have required all
agencies (including independent regulatory agencies) to make all
preliminary and final factual determinations based on evidence and to
consider: (1) the legal authority under which a rule may be proposed, (2) the
specific nature and significance of the problem the agency may address with
a rule, (3) whether existing rules have created or contributed to the problem
the agency may address with a rule and whether such rules may be amended
or rescinded, (4) any reasonable alternatives for a new rule, and (5) the
potential costs and benefits associated with potential alternative rules.



The Startup Act 2.0 (H.R. 5893 and S. 3217) would have (among other things)
required the head of any federal or independent regulatory agency, before
issuing a proposed major rule, to analyze the problem that the rule intends to
address, and to prepare a cost-benefit analysis.

Another bill, the Independent Agency Regulatory Analysis Act (S. 3468), would have
taken a somewhat different approach. Instead of Congress directly requiring independent
regulatory agencies to analyze their forthcoming rules, the bill would have authorized the
President to issue an executive order requiring the agencies to conduct such analyses for
their draft economically significant proposed and final rules “to the extent permitted by
law.”79 The President would also have been authorized to require independent regulatory
agencies to submit such rules and analyses to OIRA, as well as any draft “significant”
79

The bill would have also permitted the executive order to require independent regulatory agencies to comply (to the
extent permitted by law) with “regulatory analysis requirements applicable to other agencies.”

28

proposed or final rules. In addition, the bill would have permitted the executive order to
require that OIRA place its assessment of the agency’s analysis in the public record. If
OIRA determined that an agency had not complied with the analysis requirements, the
executive order could have required the agency to respond and justify its position.80 The
stated purpose of S. 3468 was to “affirm the authority of the President to require
independent regulatory agencies to comply with regulatory analysis requirements
applicable to executive agencies.”
As noted previously, a number of individuals and organizations have expressed support
for these kinds of legislative initiatives. In September 2012, a bipartisan group of seven
former OIRA Administrators sent a letter to the Chairman of the Senate Committee on
Homeland Security and Governmental Affairs expressing their “strong support” for S.
3468, saying the bill would improve the quality of rulemaking by independent regulatory
agencies by extending to them the “same principles of regulation that have long governed
executive agencies.”81 The Business Roundtable has also voiced support for the bill,
saying “cost-benefit analysis and OMB review of major rules represent a sound and
prudent management approach, which should not be limited to just a subset of regulatory
agencies.” 82
1.

Objections

However, other observers do not believe that independent regulatory agencies should be
subject to these types of analytical requirements, with many of the concerns centering on
a perceived reduction in the agencies’ independence from the President. For example, on
October 26, 2012, the heads of six independent regulatory agencies wrote to the
Chairman and Ranking Member of the Senate Committee on Homeland Security and
Governmental Affairs expressing their concerns about S. 3468.83 Their concerns centered
on the proposed submission of the agencies’ rules to OIRA, but also addressed other
issues.
Independent regulatory agencies were established by Congress to exercise policymaking
functions – and in particular, rulemaking functions – independent of the control of any
Administration. Independent regulatory agencies have sought to implement statutes in a
manner faithful to the statutory language and consistent with our respective missions
without imposing unnecessary costs. S. 3468 authorizes the President to require
independent regulatory agencies to submit their rulemakings to OMB’s Office of
Information and Regulatory Affairs for prior review. This would give any president
80

The bill stated that independent regulatory agencies’ compliance with the executive order is not judicially
reviewable, but any analysis or OIRA determinations pursuant to the executive order would be part of the record of
agency actions in any other judicial review.
81
See http://portman.senate.gov/public/index.cfm/files/serve?File_id=563c60e4-3770-4329-b1aa-ff51752cd750 for a
copy of this letter.
82
See, for example, a letter from Business Roundtable supporting S. 3468, available at
http://businessroundtable.org/news-center/brt-letter-supporting-s.3468-the-independent-agency-regulatory-analys1/.
See also Thomas Hemphill, “It’s Time to Regulate the Regulators,” Real Clear Markets, September 21, 2012, at
http://www.realclearmarkets.com/articles/2012/09/21/its_time_to_regulate_the_regulators_99895.html.
83
See http://www.buckleysandler.com/uploads/104/doc/10-2612%20Agency%20Letter%20to%20Lieberman%20re%20S%203468.pdf for a copy of this letter.

29

unprecedented authority to influence the policy and rulemaking functions of independent
regulatory agencies and would constitute a fundamental change in the role of independent
regulatory agencies.

Other objections to these kinds of legislative initiatives have focused on the validity and
usefulness of cost-benefit analysis itself in this arena. For example, one observer, noting
the volume of rulemaking expected to be issued by CFTC under the Dodd-Frank Act,
questioned whether the costs and benefits of the agency’s rules can be “measured with
enough precision to make meaningful estimates of the net benefit of all these
regulations,” and said “it is not clear that [cost-benefit analysis] can provide a clear path
to better regulation of commodities and other markets.”84 Similarly, a witness testifying
before the House Judiciary Committee’s Subcommittee on Courts, Commercial and
Administrative Law described cost-benefit analysis as
a flawed technique for distinguishing between useful and counterproductive regulations.
More fundamentally, the problems arising from the current regulatory process, for the
most part, are not the result of regulations lacking justification or whose costs exceed
their benefits. Instead, the primary problem is inadequate resources to allow agencies to
fulfill their statutory responsibilities and fulfill their tasks of achieving public policy
goals.85

Another observer described what he considered to be the “limitations of cost-benefit
analysis,” saying (1) regulatory costs are generally much easier to identify and quantify
than benefits; (2) cost estimates are commonly drawn from data supplied by the regulated
industry, which has an “inherent incentive to maximize cost estimates;” (3) once
regulations are imposed, regulated parties are often able to minimize compliance costs
below expected levels; and (4) costs are borne by regulated parties, while benefits are
often realized in the form of harms not inflicted on broader segments of society.86 This
observer also noted that when multiple regulations are intended to provide an integrated
solution to a problem, requiring a separate cost-benefit analysis for each regulation could
result in the benefits of a comprehensive regulatory strategy being overlooked.
Still other concerns focus on whether the new analytical requirements would negatively
affect the ability of certain independent regulatory agencies to issue their rules in a timely
fashion. The previously-mentioned October 2012 letter from the heads of six
independent regulatory agencies stated that S. 3468 “would interfere with our ability to
promulgate rules critical to our missions in a timely manner and would likely result in
unnecessary and unwarranted litigation in connection with our rules.”87 Similarly,
representatives of a child safety group said that by “mandating a new layer of economic
84

John Kemp, “Opinion: Dodd-Frank Risks Cost-Benefit Train Wreck,” Reuters Hedgeworld, March 7, 2012.
Testimony of Robert L. Glicksman, U.S. Congress, House Committee on the Judiciary, Subcommittee on Courts,
Commercial and Administrative Law, Raising the Agencies’ Grades—Protecting the Economy, Assuring Regulatory
Quality and Improving Assessments of Regulatory Need, 112th Cong., 1st sess., March 28, 2011, Serial No. 112-34,
p.80, available at http://judiciary.house.gov/hearings/printers/112th/112-34_65485.PDF.
86
Blaine F. Aikin, “Are Cost-Benefit Analyses Exploited?,” Investment News, September 30, 2012, available at
http://www.investmentnews.com/article/20120930/REG/309309968#. The author was describing the results of a study
by Better Markets entitled “Setting the Record Straight on Cost-Benefit Analysis and Financial Reform at the SEC.”
87
See http://www.buckleysandler.com/uploads/104/doc/10-2612%20Agency%20Letter%20to%20Lieberman%20re%20S%203468.pdf for a copy of this letter.
85

30

analysis requirements, S. 3468 would significantly delay or prevent the implementation
of the safety protections issued by the [Consumer Product Safety Commission], leaving
American children without the critical protections created by the Consumer Product
Safety Improvement Act.”88 One of the particular concerns about S. 3468 is that rules
would not be sent to OIRA until after commissioners had reached a compromise, and any
adverse comments from OIRA could “throw the commission back to the drawing
board.”89

IV. Analytical Requirements and Independent Regulatory
Agencies
Several crosscutting analytical requirements are already potentially applicable to rules
issued by independent regulatory agencies. Also, some of the statutes that provide
independent regulatory agencies with rulemaking authority contain certain provisions that
may require some type of regulatory analysis. Most independent regulatory agencies,
however, are not explicitly required to prepare cost-benefit analyses before issuing their
rules.

A.

Crosscutting Analytical Requirements Applicable to
Independent Regulatory Agencies

At least three crosscutting analytical requirements are generally applicable to independent
regulatory agencies: the Regulatory Flexibility Act (RFA), the Paperwork Reduction Act
(PRA), and the National Environmental Policy Act (NEPA).90 However, those analyses
are focused on particular issues (e.g., effects on small entities and paperwork burden), not
overall costs and benefits. Also, whether these requirements actually result in an analysis
depends on the nature of the rule being issued, and (at least in the case of the RFA and
NEPA) agency discretion.
1.

Regulatory Flexibility Act

The Regulatory Flexibility Act (5 U.S.C. §§ 601-612) requires federal agencies to assess
the impact of their forthcoming regulations on “small entities,” which the Act defines as
88

Linda Ginzel and Boaz Keysar, co-founders of Kids in Danger, “Undermining Vital Child Protections,” The Hill’s
Congress Blog, November 5, 2012, at http://thehill.com/blogs/congress-blog/economy-a-budget/265967-underminingvital-child-protections.
89
Cheryl Bolen, “Prospects Dim for Regulatory Reform, But Some Eyeing Independent Agencies,” BNA Daily Report
for Executives, October 4, 2012, p. A-15.
90
Two executive orders (EO 12630 on “takings” and EO 12898 on certain environmental and human health risks) also
contain analytical requirements and arguably cover independent regulatory agencies, but are only rarely mentioned and
hardly ever triggered. Other crosscutting analytical requirements (e.g., privacy assessments under the E-Government
Act, 44 U.S.C.A. § 3601 note) are also rarely invoked.

31

including small businesses, small governmental jurisdictions, and certain small not-forprofit organizations. “Agency” is defined in the RFA by referring to the definition in the
Administrative Procedure Act (5 U.S.C. § 551(1)), which generally defines it as “each
authority of the Government of the United States, whether or not it is within or subject to
review by another agency.”91
Section 603 of the RFA requires agencies to prepare an “initial regulatory flexibility
analysis” (IRFA) before publishing a proposed rule, which is to contain (1) a description
of the reasons why the rule is being considered, (2) a statement of the rule’s objectives
and legal basis, (3) a description of and, where feasible, an estimate of the number of
small entities to which the rule would apply; (4) a description of the projected reporting,
recordkeeping, and other compliance requirements, including an estimate of the classes
of small entities that will be subject to the rule and the types of professional skills
necessary for preparation of any report or records; and (5) an identification of all federal
rules that may duplicate, overlap, or conflict with the proposed rule. The IRFA is also to
contain “a description of any significant alternatives to the proposed rule which
accomplish the stated objectives of applicable statutes and which minimize any
significant economic impact of the proposed rule on small entities,” such as differing
compliance or reporting requirements or timetables, simplification of requirements, and
exemptions for small entities.
When an agency issues a final rule for which a proposed rule is required, the agency is
required to prepare a “final regulatory flexibility analyses” (FRFA), which is required to
contain (1) a state of the need for and objectives of the rule; (2) a summary of the
significant issues raised by the public comments in response to the IRFA, the agency’s
assessment, and any changes made pursuant to those comments; (3) a description of and
an estimate of the number of small entities to which the rule will apply, or an explanation
of why the estimate is not available; (4) a description of the steps the agency has taken to
minimize the significant economic impact on small entities, including a “statement of the
factual, policy, and legal reasons for selecting the alternative adopted in the final rule and
why each one of the other significant alternatives to the rule considered by the agency
which affect the impact on small entities was rejected.”92 In complying with the
requirements for an IRFA and a FRFA, agencies are permitted to provide “either a
quantifiable or numerical description of the effects of a proposed rule or alternatives to
the proposed rule, or more general descriptive statements if quantification is not
practicable or reliable.”93
However, the agency is not required to prepare an IRFA or a FRFA if the rule published
without an NPRM,94 or if the agency certifies that the rule is not expected to have a
91

The definition goes on to exclude such entities as the Congress, the courts of the United States; the governments of
the territories or possessions of the United States; and the government of the District of Columbia.
92
5 U.S.C. § 604.
93
5 U.S.C. § 607.
94
See U.S. General Accounting Office, Federal Rulemaking: Agencies Often Publish Final Actions Without Proposed
Rules, GAO/GGD-98-126, August 31, 1998, which discovered that about half of all final rules published in 1997 had
no prior NPRM, including 11 of 67 major rules.

32

“significant economic impact on a substantial number of small entities.”95 Agencies are
required to publish such certifications in the Federal Register at the time the proposed
and final rules are published, along with a statement providing the factual basis for such
certification.96 Section 612 of the RFA requires the Small Business Administration’s
(SBA) Chief Counsel for Advocacy to monitor agency compliance with the Act and to
report at least annually to the President and to the Committees on the Judiciary and Small
Business of the Senate and House of Representatives.

a)

The RFA In Practice

In practice, federal agencies often do not perform a “formal” RFA analysis for their final
rules. For example, of the 100 major rules that were issued in 2010, the agencies
indicated that a regulatory flexibility analysis was not required for 72 rules, because (1)
the rules were not expected to have a “significant economic impact on a substantial
number of small entities” (53 rules),97 (2) the agency was not required to issue a notice of
proposed rulemaking (12 rules),98 or (3) the agency relied on an analysis prepared for a
similar rule (7 rules). Independent regulatory agencies were somewhat more likely to
prepare an RFA analysis than other types of agencies. Of the 19 major rules that were
issued either solely or jointly by independent regulatory agencies in 2010, the agencies
concluded that no analysis was needed in 8 rules.99
The RFA does not define the terms “significant economic impact” or “substantial number
of small entities,” thereby giving federal agencies substantial discretion regarding when
the act’s analytical requirements are formally initiated. In addition, some agencies do not
consider an RFA analysis to be required if the rule is expected to have significant positive
effects on small entities.100 GAO has examined the implementation of the RFA several
95

5 U.S.C. § 605(b).
The RFA initially did not permit judicial review of agencies’ actions under the act. However, amendments to the act
in 1996 as part of the Small Business Regulatory Enforcement Fairness Act (SBREFA, 5 U.S.C. § 601 note) permitted
judicial review regarding, among other things, agencies’ regulatory flexibility analyses for final rules and any
certifications that their rules will not have a significant impact on small entities. As a result, a small entity that is
adversely affected or aggrieved by an agency’s determination that its final rule would not have a significant impact on
small entities could seek judicial review of that determination within one year of the date of the final agency action. In
granting relief, a court may remand the rule to the agency or defer enforcement against small entities.
97
Nevertheless, in 11 of these 54 rules, the agencies indicated that they conducted an analysis meeting the requirements
of the RFA.
98
The RFA states (5 U.S.C. § 604(a)) that a final regulatory flexibility analysis is required “When an agency
promulgates a final rule under section 553 of this title, after being required by that section or any other law to publish a
general notice of proposed rulemaking.”
99
One of these eight rules was issued jointly by five agencies. Four of the five agencies (all independent regulatory
agencies) said the rule would not have a significant economic impact on a substantial number of small entities. The
fifth agency (the Office of the Comptroller of the Currency within the Department of the Treasury) said the rule would
have such impacts, and prepared a regulatory flexibility analysis.
100
See, for example, U.S. Department of Health and Human Services, “Patient Protection and Affordable Care Act;
Establishment of Consumer Operated and Oriented Plan (CO-OP) Program,” 76 Federal Register 43237, July 20, 2011,
in which the department said that the Centers for Medicare and Medicaid Services interprets the RFA analysis
requirement “as applying only to regulations with negative impacts.” However, the department said it routinely
prepares a voluntary analysis when there are significant positive impacts.
96

33

times within the past 20 years, and a recurring theme in GAO’s reports is a lack of clarity
in the Act and a resulting variability in its implementation.101 In 2001, GAO testified that
the promise of the RFA might never be realized until Congress or some other entity
defines what a “significant economic impact” and a “substantial number of small entities”
mean in a rulemaking setting.102 However, other observers have indicated that the
definitions of these terms should remain flexible because of significant differences in
each agency’s operating environment.103
2.

Paperwork Reduction Act

The Paperwork Reduction Act (44 U.S.C. §§ 3501-3520) was originally enacted in 1980,
but was subsequently amended in 1986 and again in 1995. One of the purposes of the
PRA is to minimize paperwork burden for individuals, small businesses, and others
resulting from a collection of information by or for the federal government.104 The PRA
requires agencies to justify any covered collection of information from the public by
establishing the need and intended use of the information, estimating the burden that the
collection will impose on respondents, and showing that the collection is the least
burdensome way to gather the information.105 “Agency” is defined in the act as
any executive department, military department, Government corporation, Government
controlled corporation, or other establishment in the executive branch of the Government
(including the Executive Office of the President), or any independent regulatory agency,
but does not include (A) the General Accounting Office; (B) Federal Election
Commission; (C) the governments of the District of Columbia and of the territories and
possessions of the United States, and their various subdivisions; or (D) Governmentowned contractor-operated facilities, including laboratories engaged in national defense
research and production activities. 106

“Burden” is broadly defined in the Act to include all of the “time, effort, or financial
resources expended by persons to generate, maintain, or provide information to or for a
Federal agency,” including any time or other expenditure needed to review instructions,
acquire technology, or search data sources.107 Paperwork burden is most commonly
estimated in terms of “burden hours,” which is a function of (1) the frequency of an
information collection, (2) the estimated number of respondents, and (3) the amount of
time that the agency estimates it takes each respondent to complete the collection. A
“collection of information” is defined as “obtaining, causing to be obtained, soliciting, or
requiring the disclosure to third parties or the public” of information from 10 or more
101

See, for example, U.S. General Accounting Office, Regulatory Flexibility Act: Key Terms Still Need to Be Clarified,
GAO-01-669T, April 24, 2001.
102
U.S. General Accounting Office, Regulatory Flexibility Act: Key Terms Still Need to Be Clarified, GAO-01-669T,
April 24, 2001.
103
See, for example, page 17 of the SBA Office of Advocacy’s guidance on the implementation of the RFA, available
at http://www.sba.gov/sites/default/files/rfaguide.pdf, which says “Significance should not be viewed in absolute
terms….”
104
44 U.S.C. § 3501(1).
105
44 U.S.C. § 3506(c).
106
44 U.S.C. § 3502(1).
107
44 U.S.C. § 3502(2).

34

persons, not including agencies or employees of the federal government. Regulations
implementing the PRA state that “any collection of information addressed to all or a
substantial majority of an industry is presumed to involve ten or more persons.”108
The original PRA established OIRA within OMB to provide central agency leadership
and oversight of government-wide efforts to reduce unnecessary paperwork burden and
improve the management of information resources. Agencies must receive OIRA
approval (signified by an OMB control number displayed on the information collection)
for each collection request before it is implemented, and those approvals must be
renewed at least every three years. Failure to obtain OIRA approval for an active
collection, or the lapse of that approval, represents a violation of the act, and triggers the
PRA’s public protection provision. Under that provision, no one can be penalized for
failing to comply with a collection of information subject to the Act if the collection does
not display a valid OMB control number.109 OIRA can disapprove any collection of
information if it believes the collection is inconsistent with the requirements of the PRA.
However, multi-headed independent regulatory agencies can, by majority vote of the
leadership, void any OIRA disapproval of a proposed information collection. Specifically,
the PRA states that
An independent regulatory agency which is administered by 2 or more members of a
commission, board, or similar body, may by majority vote void (A) any disapproval by
the Director [of OMB], in whole or in part, of a proposed collection of information of that
agency; or (B) an exercise of authority under subsection (d) of section 3507 concerning
that agency (regarding information collections that are part of a proposed rule). 110

Therefore, for example, if OIRA denies a request to collect information by the SEC, the
Board of Governors, or the CFTC, those agencies can, by a majority vote, void that
disapproval. CFPB is an independent regulatory agency, but it is headed by a single
director, not a multi-member body. Therefore, this PRA authority would not appear to
apply to the bureau. However, Section 1100D(c) of the Dodd-Frank Act amended the
PRA, and states that “Notwithstanding any other provision of law, the Director (of OMB)
shall treat or review a rule or order prescribed or proposed by the Director of the Bureau
of Consumer Financial Protection on the same terms and conditions as apply to any rule
or order prescribed or proposed by the Board of Governors of the Federal Reserve
System.” Applying this subsection, because the Board of Governors, a multi-member
board, is authorized to void OIRA disapprovals of its information collections, the director
of the CFPB may arguably be authorized to do so as well.111

108

5 CFR 1320.3(c)(4)(ii).
For an up-to-date inventory of OMB-approved information collections, see http://www.reginfo.gov/public/do/
PRAMain.
110
44 U.S.C. § 3507(f)(1).
111
For more information on the PRA, see U.S. Congressional Research Service, Paperwork Reduction Act (PRA):
OMB and Agency Responsibilities and Burden Estimates, by Curtis W. Copeland and Vanessa K Burrows, CRS Report
R40636, June 15, 2009, available at
http://graphics8.nytimes.com/packages/pdf/nyregion/2009/records/paperworkreductionreportbycrs.pdf.
109

35

a)

The PRA in Practice

In rulemaking, the PRA is triggered only if the rule contains a covered “collection of
information.” In 21 of the 100 major rules that were issued in 2010, the agencies
indicated that the rule did not contain a collection of information, so no PRA analysis was
performed. Several other rules also did not trigger a PRA analysis because of statutory
exemptions or other factors.112 Of the 19 major rules that were issued solely or jointly by
independent regulatory agencies that year, the agencies did a PRA analysis in 15 of them.
One rule did not mention the PRA, two rules did not have a collection of information, and
the agency referenced an earlier PRA analysis in another rule.
3.

National Environmental Policy Act

The National Environmental Policy Act of 1969 (42 U.S.C. §§ 4321-4347) requires
federal agencies to include in every recommendation or report related to “major Federal
actions significantly affecting the quality of the human environment” a detailed statement
on the environmental impact of the proposed action. If a rule is expected to have
significant environmental effects, the agency must prepare an environmental impact
statement (EIS), take public comments, publish a final EIS, and publish a record of
decision. The environmental impact statement must delineate the direct, indirect, and
cumulative effects of the proposed action. Agencies are also required to include in the
statement (1) any adverse environmental effects that cannot be avoided should the
proposal be implemented, (2) alternatives to the proposed action, (3) the relationship
between local short-term uses of the environment and the maintenance and enhancement
of long-term productivity, and (4) any irreversible and irretrievable commitments of
resources that would be involved if the proposed action should be implemented. If it is
unclear whether the rule will have such effects, the agency may first prepare an
environmental assessment (EA), which may reveal significant effects (which would then
require an EIS) or no significant effects (in which case the agency would issue a “finding
of no significant impact,” or FONSI, and proceed with the issuance of the rule). Both the
EA and the EIS should discuss the need for the rule, alternative courses of action, and
environmental effects, although the EIS process is more complex. If an agency
determines that a category of actions will not have “significant” environmental effects, it
may publish a categorical exclusion to the analysis requirement in the Federal Register
and take public comments on the exclusion. 113

a)

NEPA in Practice

112

In two rules issued by the Department of Agriculture, the department cited Section 2904 of the Food, Conservation,
and Energy Act of 2008 as providing that any regulations issued under Title II would be issued “without regard to” the
PRA. In nine other rules, the agencies took other types of actions (e.g., referred to or requested reinstatement of an
earlier collection of information).
113
See http://ceq.hss.doe.gov/ for more information on NEPA.

36

In practice, NEPA environmental impact statements are not often prepared for agency
rules. Of the 100 major rules issued by all agencies in 2010, the agencies mentioned
NEPA in only 25 rules, and concluded that only 2 of the rules required a new
environmental impact statement. In the remaining 23 rules, the agencies either prepared
an environmental assessment but ultimately issued a “finding of no significant impact”
(10 rules), referenced an earlier environmental impact statement (6 rules), cited a
categorical exemption to NEPA (6 rules), or said a NEPA analysis was not necessary (1
rule). Of the 19 major rules that were issued solely or jointly by independent regulatory
agencies that year, NEPA was only mentioned in 1 rule, and there the agency invoked a
categorical exclusion to the statute.
The infrequency with which NEPA was mentioned or triggered in these rules is
understandable, as many independent regulatory agencies’ rules (e.g., those establishing
banking procedures) are not likely to have an environmental impact. An FCC official
told the author of this report that NEPA only applies to a very small subset of
Commission proceedings (e.g., tower sitings). Also, NEPA requires a detailed statement
on the environmental impact of rules that are “major Federal actions significantly
affecting the quality of the human environment” – a phrase that is subject to agency
interpretation. As discussed in a Congressional Research Service report, just about every
word in the term “major Federal actions significantly affecting the quality of the human
environment” has been disputed, scrutinized, and defined by the courts.114
4.

Other Possible Crosscutting Analytical Requirements

Some have argued that other crosscutting rulemaking requirements implicitly require
independent regulatory agencies to prepare cost-benefit analyses for certain rules. For
example, as noted in a previous report for ACUS, a Department of Transportation official
said that one could argue that the Administrative Procedure Act‘s “arbitrary and
capricious” standard is essentially an analytical requirement, noting that Justice Antonin
Scalia asserted long before he became a judge that agencies would have to do a costbenefit analysis to show that their rules are “reasonable” under the APA.115 However, the
APA has not been traditionally considered an analytical requirement.
Others have asserted that the Congressional Review Act could be read to require agencies
to prepare economic analyses for their “major” rules. For example, in his comments

114

U.S. Congressional Research Service, Overview of National Environmental Policy Act (NEPA) Requirements, by
Kristina Alexander, CRS Report RS20621, January 11, 2008, available at
http://www.nationalaglawcenter.org/assets/crs/RS20621.pdf.
115
Curtis W. Copeland, Regulatory Analysis Requirements: A Review and Recommendations for Reform, p. 40,
available at http://www.acus.gov/wp-content/uploads/downloads/2012/03/COR-Copeland-Report-CIRCULATED.pdf.
As one author noted, in the courts‘ application of the “hard look” doctrine under the APA, they “examine the agency‘s
explanatory material to determine whether the agency used the correct analytical methodology…” Thomas O.
McGarity, “The Courts and the Ossification of Rulemaking: A Response to Professor Seidenfeld,” Texas Law Review,
volume 75 (1997), p. 527.

37

regarding a possible new executive order on rulemaking,116 Jim Tozzi of the Center for
Regulatory Effectiveness said the following:
The Act defines “major rule” as one determined to be major by OIRA under the
definition of "major." 5 U.S.C. § 804(2). The definition states: “The term 'major rule'
means any rule that the Administrator of the Office of Information and Regulatory Affairs
of the Office of Management and Budget finds has resulted in or is likely to result in -(A) an annual effect on the economy of $100,000 or more; (B) a major increase in costs
or price for consumers, individual industries, Federal, State of local government agencies,
or geographic regions; or (C) significant adverse effects on competition, employment,
investment, productivity, innovation, or on the ability of United States- based enterprises
to compete with foreign-based enterprises in domestic and export markets.” [Emphasis
added]
In other words, agencies must provide OIRA with sufficient information for OIRA to
make a determination to Congress as to whether a rule is “major”, with the only
exception being Federal Reserve monetary policy rules. For this reason alone, all
agencies, including independent agencies, must send their rules, along with their
estimates of monetary impacts and impacts on competition, employment, investment,
productivity, and international trade, to OIRA for a determination of whether the rule is
“major.” This requirement also clearly implies that OIRA should be able to analyze
such impact information independently in order to provide Congress with its own opinion
on impact, not just act as a conduit for the submitting agency's opinion. 117

During interviews for this report, Art Fraas and Randall Lutter of Resources for the
Future voiced similar views, saying that the CRA arguably constitutes a requirement for
all agencies (including independent regulatory agencies) to prepare at least cost analyses
to support their and OIRA’s “major rule” determinations.118 However, the CRA has not
been traditionally viewed as an analytical requirement.

B.

Agency- or Issue-Specific Analytical Requirements

In addition to the crosscutting analytical requirements that may apply to independent
regulatory agencies (particularly, the RFA and the PRA), agency or issue-specific
statutory provisions may also require certain independent regulatory agencies to conduct
some type of analysis or consider certain effects when issuing certain kinds of
regulations. Some of these agencies have also issued supplementary guidance or
memoranda elaborating on these statutory provisions, and some of the agencies’
commissioners have commented on these requirements or guidance documents. This
section of the report summarizes those statutory provisions and guidance documents in
the independent regulatory agencies that have issued the most final rules and/or major
final rules in recent years.
1.

Securities and Exchange Commission

116

See http://www.reginfo.gov/public/jsp/EO/fedRegReview/Jim_Tozzi_attachment.pdf for a copy of these comments.
Ibid., p. 6. The italicized sections were emphasized in the original.
118
Telephone interview with Art Fraas and Randall Lutter, Resources for the Future, September 11, 2012.
117

38

Section 23(a)(2) of the Securities Exchange Act of 1934 (15 U.S.C. § 78w(a)(2)) states
that the SEC and the Secretary of the Treasury, “in making rules and regulations pursuant
to any provisions of this chapter, shall consider among other matters the impact any such
rule or regulation would have on competition.” It goes on to say that the Commission and
the Secretary “shall not adopt any such rule or regulation which would impose a burden
on competition not necessary or appropriate in furtherance of the purposes of this
chapter,” and requires them to include the reasons for such a determination in the rule’s
statement of basis and purpose. In addition, whenever the Commission is “engaged in
rulemaking and is required to consider or determine whether an action is necessary or
appropriate in the public interest,” the Exchange Act (15 U.S.C. § 78c(f)), the Investment
Company Act of 1940 (15 U.S.C. § 80a-2(c)), the Securities Act (15 U.S.C. § 77b(b)),
and the Investment Advisers Act (15 U.S.C. § 80b-2(c)) each require the Commission to
“consider, in addition to the protection of investors, whether the action will promote
efficiency, competition, and capital formation.”

a)

SEC Compliance Handbook

According to the SEC’s Office of the Inspector General (OIG),119 the SEC Compliance
Handbook, prepared by agency’s Office of the General Counsel and last revised in
October 1999, includes the following points in its overview of cost-benefit analysis for
SEC rulemakings:


The proposing release should identify possible direct and indirect costs and
benefits for members of the industry, relevant market segments, and types of
investors and issuers. It should also discuss any available data and solicit
comments and additional data.



The adopting release should include a substantive, qualitative discussion of
the costs and benefits and the staff’s final quantitative analysis of any
available data. A strong cost-benefit section should include both quantitative
and qualitative analysis.



A cost-benefit analysis should address both “micro,” or compliance, costs,
and “macro” costs, such as distributional effects or changes in investment or
order flows.



The agency’s economists must concur in any numbers used in the costbenefit analysis, and all numbers should be verified.

The Compliance Handbook also reportedly notes that the benefits of SEC rules “are
generally difficult to quantify” and that in many cases it will not be possible to do so. In
119

See http://www.sec-oig.gov/Reports/AuditsInspections/2011/Report_6_13_11.pdf for a copy of the June 2011
report. See http://www.sec-oig.gov/Reports/AuditsInspections/2012/Rpt%20499_FollowUpReviewofDF_CostBenefitAnalyses_508.pdf for a copy of the January 2012 report. SEC officials said the Compliance Handbook
was a “non-public document,” but verified that the characterization of it in the OIG report was correct.

39

such cases, it says, “[a] detailed qualitative assessment of the anticipated benefits will
thus be necessary.”

b)

September 2010 Memorandum

In response to questions regarding the extent to which the SEC should use cost-benefit
analysis in Dodd-Frank Act rules, then-SEC General Counsel David Becker issued a
memorandum in September 2010 stating that the Commission’s rulewriters need not
consider the costs and benefits of implementing statutory provisions when the agency has
little or no discretion to consider alternative approaches.120 Specifically, the
memorandum stated that when the Commission is making no policy choices, “there are
no choices to analyze or explain.”
The former SEC inspector general later testified about how the September 2010
memorandum affected two Dodd-Frank Act rules that considered only the costs and
benefits of discretionary components and did not establish a pre-statute baseline.
In the first example, the Shareholder Approval of Executive Compensation and Golden
Parachute Compensation rulemaking, we found that the SEC’s cost-benefit analysis was
confined to the costs and benefits of the provisions that went beyond the requirements of
the Act. The SEC’s cost-benefit analysis did not discuss the costs and benefits of “sayon-pay” votes, frequency votes or disclosures and votes on golden parachute
compensation that are mandated by the Dodd-Frank Act. Similarly, in the rulemaking
related to Issuer Review of Assets in Offerings of Asset-Backed Securities, we found that
the SEC cost-benefit analysis did not discuss the costs and benefits of the requirement for
issuers to perform a review of the underlying assets and disclose the nature of the review.
The [OIG] report explained that had the SEC analysis included a calculation of the costs
of the mandatory provisions of the rulemaking, both Congress and the public might use
this information to consider whether to seek to repeal or weaken the mandatory
provisions.121

c)

March 2012 SEC Guidance

After reports on SEC’s economic analysis practices by the SEC inspector general and
GAO, congressional inquiries, and several court decisions, on March 16, 2012, the SEC
Office of the General Counsel and the Division of Risk, Strategy, and Financial
Innovation (RSFI) issued a memorandum to the staff of the rulewriting divisions and
offices providing new guidance on economic analysis.122 Among other things, the March
120

Memorandum from David M. Becker, General Counsel, “Thoughts About Best Practices in Drafting Economic
Analysis Sections of Releases for Dodd-Frank Related Rulemakings,” September 27, 2010. SEC officials said the
memorandum was an internal “non-public document,” but that the OIG report included virtually all of its substantive
provisions.
121
Testimony of H. David Kotz before the TARP, Financial Services and Bailouts of Public and Private Programs
Subcommittee, House Committee on Oversight and Government Reform, April 17, 2012, available at
http://oversight.house.gov/wp-content/uploads/2012/04/4-17-12-Kotz-Testimony.pdf.
122
See http://www.sec.gov/divisions/riskfin/rsfi_guidance_econ_analy_secrulemaking.pdf for a copy of this
memorandum. Hereafter referred to as “March 2012 guidance.”

40

2012 guidance changed the SEC’s position on whether statutorily mandated provisions
should be accounted for in the economic analysis of a rule. Specifically, it said:
where a statute directs rulemaking, rulewriting staff should consider the overall economic
impacts, including both those attributable to Congressional mandates and those that result
from an exercise of the Commission’s discretion. This approach will often allow for a
more complete evaluation of alternative means of meeting the mandate and give the most
complete picture of a rule’s economic effects, particularly because there are many
situations in which it is difficult to distinguish between the mandatory and discretionary
components of a rule.123 (Emphasis in the original.)

Although the SEC has indicated that it voluntarily follows the “spirit” of Executive Order
12866 and OMB Circular A-4 in preparing cost-benefit analyses for its rules (and
references the circular repeatedly in the March 2012 guidance), the agency also contends
that it is not required to prepare such analyses. For example, the March 2012 guidance
references the above-mentioned statutory requirements to “consider” certain factors
before issuing certain rules, but then states “No statute expressly requires the
Commission to conduct a formal cost-benefit analysis as part of its rulemaking
activities,” and says that “as an independent regulatory agency the SEC is not obligated
to follow the guidelines for regulatory economic analysis by executive agencies” in the
executive order or the circular.124 The SEC Chairman said virtually the same thing in
congressional testimony one month later.125

d)

April 2012 Hearing on SEC Analyses

On April 17, 2012, the Subcommittee on TARP, Financial Services and Bailouts of Public
and Private Programs of the House Committee on Oversight and Government Reform
held a hearing entitled “The SEC’s Aversion to Cost-Benefit Analysis.”126 At that
hearing, the SEC Chairman said the agency “has for years considered economic analysis
to be a critical element of its rulewriting process,” and the agency’s “substantive rule
releases include more extensive economic analysis than those of any other federal
financial regulator.”127 She also noted the issuance of the March 2012 revised guidance
on economic analyses in SEC rulemaking, and said the following:
Among the specific steps that we have been taking and that are included in the current
staff guidance are: involving our economists in the rulemaking process before preferred
approaches are decided; assuring that rule releases clearly identify the justification for the
proposed rule, such as a market failure or statutory mandate; where a statute directs
rulemaking, considering the overall economic impacts of the rule, including those
123

Ibid., p. 8.
Ibid., p. 3.
125
Testimony of Mary L. Schapiro, Chairman, U.S. Securities and Exchange Commission, before the Subcommittee on
TARP, Financial Services and Bailouts of Public and Private Programs, House Committee on Oversight and
Government Reform, April 17, 2012, pp. 4-5, available at http://oversight.house.gov/wp-content/uploads/2012/04/4-1712-Schapiro-Testimony.pdf.
126
See http://oversight.house.gov/wp-content/uploads/2012/09/2012-04-17-Ser.-No.-112-139-SC-Tarp-The-SECsAversion-to-Cost-Benefit-Analysis.pdf for a copy of the hearing record. (Hereafter cited as “SEC hearing.”)
127
To view the Chairman’s written statement, see http://www.sec.gov/news/testimony/2012/ts041712mls.htm.
124

41

attributable to congressional mandates and those resulting from the Commission’s
exercise of discretion; quantifying the costs and benefits where feasible and, where not
feasible, transparently explaining why not; more fully integrating analysis of economic
issues in the Commission’s rule releases; explicitly encouraging commentors to provide
quantitative, verifiable estimates of costs and benefits; greater discussion of reasonable
alternatives not chosen.128

Other witnesses at the hearing applauded the issuance of the March 2012 revised
guidance, indicating that it appeared to signal a new approach to cost-benefit analysis at
the agency.129

e)

Support for SEC Guidance

Others have also expressed support for the new SEC guidance. Michael Livermore,
executive director of the Institute for Policy Integrity at New York University, was quoted
as saying that the SEC “is finally starting to figure it out,” and that this “new approach
just might save Dodd-Frank.”130 The authors of a forthcoming article in the Yale Journal
on Regulation commended the publication of this guidance as “an important first step
toward making economic analysis of future rules both meaningful and feasible.”131 They
went on to say the following:
The SEC should continue to define what it means to “consider” efficiency, competition
and capital formation, and to define how to construe these terms in particular rules, as
well as their the relationship of these criteria to the SEC’s primary mission, “the
protection of investors.” This effort, at both the staff and Commission levels, should help
reclaim the judicial deference that the Commission’s decisions are due.

Similarly, Henry G. Manne, dean emeritus of the George Mason University School of
Law, described the SEC guidance as a “highly sophisticated, comprehensive plan for
cost-benefit analysis of SEC rules,” and said it “seemingly represents a revolutionary
turnaround from the past practices and culture of the agency.”132
2.

Commodity Futures Trading Commission

Section 15(a) of the Commodity Exchange Act (CEA, 7 U.S.C. § 19(a)) states that,
before issuing certain regulations or orders, CFTC must “consider the costs and benefits
of the action of the Commission.” It also states that those costs and benefits “shall be
128

SEC hearing, p. 6.
For example, former SEC inspector general H. David Kotz said the memorandum was a “very good start,” and that
it “changes the way things are done completely.” See p. 105 of the transcript, available at
http://oversight.house.gov/wp-content/uploads/2012/09/2012-04-17-Ser.-No.-112-139-SC-Tarp-The-SECs-Aversionto-Cost-Benefit-Analysis.pdf.
130
Ben Protess, “As Wall Street Fights Regulation, It Has Backup on the Bench,” New York Times, September 24,
2012, available at http://dealbook.nytimes.com/2012/09/24/as-wall-street-fights-regulation-it-has-backup-on-thebench/?src=rechp&pagewanted=print.
131
Bruce Kraus and Connor Raso, op. cit., p. 4.
132
Henry G. Manne, “Economics and Financial Regulation,” Regulation, Summer 2012, p. 23, available at
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2102793.
129

42

evaluated in light of - (A) considerations of protection of market participants and the
public; (B) considerations of the efficiency, competitiveness, and financial integrity of
futures markets; (C) considerations of price discovery; (D) considerations of sound risk
management practices; and (E) other public interest considerations.”133

a)

Templates and Guidelines

In September 2010, the CFTC Office of the General Counsel and the CFTC Office of the
Chief Economist created a template for a uniform cost-benefit analysis methodology to
be used in Dodd-Frank Act proposed rules.134 That template stated, in part, that Section
15(a) “does not require the Commission to quantify the costs and benefits of a rule or to
determine whether the benefits of the order outweigh its costs; rather, it requires that the
Commission ‘consider’ the costs and benefits of its actions.”135 It went on to say that
CFTC “could in its discretion determine that, notwithstanding its costs, a particular rule is
necessary or appropriate to protect the public interest or to effectuate any of the
provisions or accomplish any of the purposes of the Act.”
In May 2011, the same two offices developed “Staff Guidance on Cost-Benefit
Considerations for Final Rulemakings under the Dodd-Frank Act.”136 In that guidance,
CFTC staff were told to “consider costs and benefits in the Final Rulemakings utilizing
the principles set forth in Executive Order 13563 in a manner that is reasonably feasible
and appropriate, and consistent with the underlying statutory mandate [in Section 15(a) of
the Commodity Exchange Act].” In a footnote, the guidance stated that the term
“reasonably feasible and appropriate” meant “the extent to which (i) certain analyses,
quantitative or qualitative, is needed to address comments received (‘appropriate’) and
(ii) whether such an analysis may be performed with available resources (‘reasonably
feasible’).”137 Rulemaking teams were allowed to “choose ... quantitative analysis to
respond to comments received.”138 The guidance went on to say that additional analysis is
primarily needed when the comments raise specific concerns about costs and benefits,
and that “[q]uantitative benefits need not always be greater than costs because there may
be a statutory mandate or policy rationale behind the rule....”139
The May 2011 CFTC guidance also stated that the costs and benefits of each regulatory
alternative should be compared to a common baseline “whenever the Commission has
133

Subsection (a)(3) states that these requirements do not apply to “(A) An order that initiates, is part of, or is the result
of an adjudicatory or investigative process of the Commission. (B) An emergency action. (C) A finding of fact
regarding compliance with a requirement of the Commission.”
134
OIG/CFTC, Exhibit 1.
135
OIG/CFTC, p. 3.
136
Memorandum from Dan M. Berkovitz, General Counsel, and Andrei Kirilenko, Chief Economist, to Rulemaking
Teams, “Staff Guidance on Cost-Benefit Considerations for Final Rulemakings under the Dodd-Frank Act,” May 13,
2011, available as Exhibit 2 in the June 2011 CFTC OIG report, available at
http://www.cftc.gov/ucm/groups/public/@aboutcftc/documents/file/oig_investigation_061311.pdf.
137
Ibid., pp. 1-2.
138
Ibid., p. 3.
139
Ibid., pp. 6-7.

43

discretion as to whether and how to implement a Dodd-Frank provision.” It went on to
say that if comments from the public raise concerns about rulemaking provisions that
“merely replicate the statutory provisions the Commission is required to promulgate
without the exercise of discretion, then cost-benefit considerations may not be a factor in
the promulgation of the rule.”140
In February 2012, CFTC Commissioner Scott O’Malia criticized this aspect of the
agency’s cost-benefit analysis standards in the context of a final rule issued by the agency
imposing certain reporting and recordkeeping requirements on swap dealers and major
swap participants. Among other things, the Commissioner said that CFTC took the
position that it would “ignore comments related to required rulemaking provisions that
mirror statutory language in spite of the fact that the Commission always has some level
of discretion in determining the means to achieve such mandates.”141 He went on to say
“It is unacceptable that the Commission ignores pre-Dodd-Frank reality and establishes
its own economic baseline for its rulemakings. This practice defies not only common
sense, but rigorous and competent economic analysis as well.”
Nevertheless, CFTC continued to exclude costs and benefits attributable to the statute
from its analyses. For example, in a final rule issued in April 2012,142 CFTC said “the
costs and benefits stemming from these regulations, in large part, are attributable to the
baseline statutory mandate.”143 The agency went on to say that the cost-benefit analysis
“considers the material cost and benefit implications of these final rules in comparison to
baseline costs imposed by the statutory requirements.”144 It also said “costs and benefits
that necessarily result from these basic statutory requirements are considered to be the
‘baseline’ against which the costs and benefits of the Commission’s final rules are
compared or measured.”145

b)

CFTC MOU with OIRA

In February 2012, CFTC Commissioner Scott O’Malia sent a letter to the Acting Director
of OMB requesting that OMB review the cost-benefit analysis in three “Internal Business
Conduct Rules” voted on by the Commission that day.146 He said his concern was that

140

May 2010 CFTC memo.
Opening Statement of Commissioner Scott D. O’Malia Regarding Open Meeting on One Final Rule and One
Proposed Rule, February 23, 2012, available at
http://www.cftc.gov/PressRoom/SpeechesTestimony/omaliastatement022312.
142
U.S. Commodity Futures Trading Commission, “Swap Dealer and Major Swap Participant Recordkeeping,
Reporting, and Duties Rules; Futures Commission Merchant and Introducing Broker Conflicts of Interest Rules; and
Chief Compliance Officer Rules for Swap Dealers, Major Swap Participants, and Futures Commission Merchants,” 77
Federal Register 20128, April 3, 2012.
143
Ibid., p. 20168.
144
Ibid., p. 20167.
145
Ibid., p. 20171.
146
See http://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/omalialetter022312.pdf for a copy of this
letter. An OMB official told the author of this report that OMB did not respond to the O’Malia letter in writing.
141

44

the analysis had “failed to comply with the standards for regulatory review” outlined in
OMB Circular A-4, EO 12866, EO 13563, and EO 13579.147
In May 2012, CFTC entered into a memorandum of understanding (MOU) with OIRA
permitting OIRA staff to provide technical assistance to the agency’s staff during the
implementation of the Dodd-Frank Act, “particularly with respect to the consideration of
the costs and benefits of proposed and final rules.”148 The MOU makes clear, however,
that the “provision and acceptance of this technical assistance shall not be interpreted to
alter in any way the current relationship between OIRA and CFTC during the rulemaking
process,” and the “sharing of documents shall not constitute submission of such materials
to OIRA for review.” It was signed by the CFTC Chairman and the Administrator of
OIRA, and was later referenced in a June 2012 House Appropriations Committee
report,149 which said
The Committee is encouraged by the signing of a Memorandum of Understanding
between the Commission and the Office of Information and Regulatory Affairs (OIRA)
dated May 9, 2012, allowing technical assistance to be given to the Commission by
OIRA staff. The Committee directs the Commission to receive technical assistance in the
cost-benefit process from OIRA on all future rulemakings.

3.

“Federal Banking Agencies”

In determining the effective date and administrative compliance requirements for new
regulations that impose additional reporting, disclosure, or other requirements on insured
depository institutions, Section 302 of the Riegle Community Development and
Regulatory Improvement Act (12 U.S.C. § 4802(a)) requires each “Federal banking
agency” to “consider, consistent with the principles of safety and soundness and the
public interest - (1) any administrative burdens that such regulations would place on
depository institutions, including small depository institutions and customers of
depository institutions; and (2) the benefits of such regulations.” The term “Federal
banking agency” is defined as the Board of Governors of the Federal Reserve System, the
FDIC, and the Comptroller of the Currency.150

a)

Federal Reserve System

147

None of these documents require CFTC to prepare a cost-benefit analysis for its rules, or to submit its rules to OMB.
OIRA’s website contains a copy of the MOU, available at
http://www.whitehouse.gov/sites/default/files/omb/inforeg/regpol/oira_cftc_mou_2012.pdf. It was discussed in Jimila
Trindle, “CFTC Taps Help for Cost Analysis on New Rules,” Wall Street Journal Online, May 10, 2012, available at
http://online.wsj.com/article/SB10001424052702304070304577396192653277890.html.
149
Available at http://www.gpo.gov/fdsys/pkg/CRPT-112hrpt542/pdf/CRPT-112hrpt542.pdf.
150
12 U.S.C. § 1462(5), incorporating the definition in 12 U.S.C. § 1813(q). The Office of Thrift Supervision (OTS)
had been considered a “Federal banking agency.” However, Section 312 of the Dodd-Frank Act merged OTS with the
Office of the Comptroller of the Currency, FDIC, the Board of Governors of the Federal Reserve System, and the
Consumer Financial Protection Bureau (CFPB) as of July 21, 2011.
148

45

A June 2011 report by the OIG for the Board of Governors of the Federal Reserve System
said that statutes related to the Board’s rulemaking authority, including the Federal
Reserve Act and the Bank Holding Company Act of 1956, “generally do not require
economic analysis as part of the agency’s rulemaking activities.”151 The OIG report also
stated that the APA “does not mandate that economic analysis occur as part of the notice
and comment process,” and that the Dodd-Frank Act does not require economic analysis
as part of every rulemaking, or for any of the five rules the OIG examined. The OIG
described several “considerations, assessments, policy goals, or substantive
requirements” in the Dodd-Frank Act underlying those five rules, but did not describe any
of them as economic analysis requirements. The report noted that EO 12866 and EO
13563 do not apply to the agency, but also said “the Board’s General Counsel told us that
the Board conducts its rulemaking activities in a manner that is generally consistent with
the philosophy and principles outlined in the Executive orders.”152 The only analytic
requirements that the OIG indicated applied to the agency’s rules were the PRA and the
RFA.
The OIG report indicated that the agency’s written procedures for rulemaking are in a
document entitled “Rulemaking Procedures—Improving Board Regulations; Policy
Statement.”153 However, the report also noted that the document had not been recently
updated, and that no rulemaking team members cited the document. The document
reportedly indicates that the extent of regulatory analysis varies depending on the
regulation, and the OIG report confirmed that this was the case. The OIG recommended
that this document be updated and broadly disseminated, and that the Board consider
establishing documentation standards for rulemaking economic analysis to help ensure
reproducibility on an internal basis.”154
Although not mentioned in the OIG report, the Federal Reserve Board also has certain
rulemaking authority under the Electronic Funds Transfer Act, as amended by the DoddFrank Act (15 U.S.C. § 1693b), which states that when issuing rules under this
authority,155 the agency must
prepare an analysis of economic impact which considers the costs and benefits to
financial institutions, consumers, and other users of electronic fund transfers, including
the extent to which additional documentation, reports, records, or other paper work would
be required, and the effects upon competition in the provision of electronic banking
services among large and small financial institutions and the availability of such services
to different classes of consumers, particularly low income consumers. 156

151

Office of the Inspector General, Board of Governors of the Federal Reserve System, “Response to a Congressional
Request Regarding the Economic Analysis Associated with Specified Rulemakings,” June 13, 2011, p. 6. The report is
available at http://www.federalreserve.gov/oig/files/Congressional_Response_web.pdf.
152
Ibid., p. 9.
153
The Federal Reserve Service, Volume IV, Part 8, Subpart 8-040.
154
Federal Reserve OIG report, p. 20.
155
The Board’s authority includes rules related to reasonable interchange transaction fees for electronic debit card
transactions (15 U.S.C. § 1693o-2).
156
15 U.S.C. § 1693b(a).

46

The Act also requires the Board to demonstrate “to the extent practicable” that the
“consumer protections of the proposed regulations outweigh the compliance costs
imposed upon consumers and financial institutions.”157

b)

Federal Deposit Insurance Corporation

A June 2011 FDIC OIG report noted the applicability of the RFA and the PRA, and said
that the “Small Business Regulatory Enforcement Fairness Act also requires the FDIC to
conduct cost-benefit analyses of final rules.”158 In fact, however, that act only requires
agencies to submit a cost-benefit analysis to GAO if the agency has prepared one for the
final rule at issue.159 The OIG report pointed out that FDIC is not covered by EO 12866
and EO 13563, or by OMB Circular A-4, but said the agency’s May 1998 Statement of
Policy on the Development and Review of FDIC Regulations and Policies “generally
addresses the spirit of, and principles found in, the two executive orders and OMB
guidance.”160
According to the agency’s website, this Statement of Policy “recognizes the FDIC's
commitment to minimizing regulatory burdens on the public and the banking industry
and the need to ensure that FDIC regulations and policies achieve regulatory goals
effectively.”161 After determining the need for a regulation, the statement of policy says
“[n]ew reporting and recordkeeping requirements are carefully analyzed,” and “potential
benefits associated with the regulation or statement of policy are weighed against the
potential costs.”162 However, this statement of policy does not require a formal costbenefit analysis for the agency’s rules, and only mentions this analysis in the context of
new reporting and recordkeeping requirements. The June 2011 OIG report characterizes
the analysis as “discretionary,” and stated that the policy statement “is not prescriptive in
terms of the analysis that must be performed in order to comply with its principles
because the nature of analysis required depends on the particular rulemaking.”163

c)

Comptroller of the Currency

157

Ibid.
Office of the Inspector General, Federal Deposit Insurance Corporation, “Evaluation of the FDIC’s Economic
Analysis of Three Rulemakings to Implement Provisions of the Dodd-Frank Act,” Report No. EVAL-11-003, June
2011, p. 1 of the Executive Summary. The report is available at http://www.fdicoig.gov/reports11%5C11-003EV.pdf,
and is hereafter referred to as “OIG/FDIC.”
159
Specifically, the portion of SBREFA known as the Congressional Review Act states that rulemaking agencies must
submit to GAO, and make available to each house of Congress, “a complete copy of the cost-benefit analysis of the
rule, if any” (5 U.S.C. § 801(a)(1)(b)(i)).
160
OIG/FDIC, p. 1 of the Executive Summary.
161
See http://www.fdic.gov/regulations/laws/plans/index.html for these comments. The policy is available at 63
Federal Register 25157, May 7, 1998, http://www.gpo.gov/fdsys/pkg/FR-1998-05-07/pdf/98-12059.pdf.
162
63 Federal Register 25158, May 7, 1998.
163
OIG/FDIC, p. 9.
158

47

Section 315 of the Dodd-Frank Act amended the PRA (44 U.S.C. § 3502(5)) to designate
OCC as an independent regulatory agency. Previously, OCC had been part of the
Department of the Treasury, and therefore was subject to Executive Order 12866 and
OMB Circular A-4, as well as the Unfunded Mandates Reform Act. As an independent
regulatory agency, however, OCC is no longer subject to those analytical requirements.
The Department of the Treasury’s June 2011 OIG report on economic analysis at OCC
cites three statutory requirements for such analyses – the RFA, the PRA, and the abovementioned Riegle Community Development and Regulatory Improvement Act (12 U.S.C.
§ 4802(a)).164 The report stated that OCC “has processes in place to ensure the rigor and
consistency of economic analysis performed in connection with rulemaking,”165 and that
those processes were developed and in place prior to the passage of the Dodd-Frank Act
when the agency was still subject to Executive Order 12866, Circular A-4, and UMRA.
It also said that the agency’s Guide to Rulemaking Procedures describe the requirements
for economic analysis in support of rulemaking. However, the report said that a “process
for the actual preparation, review, and approval of economic analysis in support of
rulemaking is in place but has not been documented in a formal policies and procedures
manual.”166
4.

Consumer Financial Protection Bureau

CFPB was created by Title X of the Dodd-Frank Act, which consolidated and transferred
supervisory and enforcement authority over a number of consumer financial products and
services to the Bureau on July 21, 2011. Title X and Title XIV of the Act contain
numerous provisions that require or permit CFPB to issue regulations implementing the
statute’s provisions.167
Section 1022(b)(2)(A) of the Dodd-Frank Act (12 U.S.C. § 5512) establishes certain
“standards of rulemaking” for CFPB. Specifically, it states that the Bureau “shall
consider—(i) the potential benefits and costs to consumers and covered persons,
including the potential reduction of access by consumers to consumer financial products
or services resulting from such rule; and (ii) the impact of proposed rules on covered
persons, as described in section 1026 [depository institutions and credit unions with $10
billion or less in assets], and the impact on consumers in rural areas.” Section 1100G of
the act amended the RFA and requires CFPB to include in its initial regulatory flexibility
analysis a description of any projected increase in the cost of credit for small entities and
164

Office of the Inspector General, Department of the Treasury, “Dodd-Frank Act: Congressional Request for
Information Regarding Economic Analysis by OCC,” June 13, 2011, available at http://www.treasury.gov/about/
organizational-structure/ig/Documents/OIG-CA-11-006.pdf.
165
Ibid., p. 3.
166
Ibid., p. 4.
167
For information on the rules that CFPB was expected to issue, see CRS Report R41380, The Dodd-Frank Wall
Street Reform and Consumer Protection Act: Regulations to be Issued by the Consumer Financial Protection Bureau,
by Curtis W. Copeland. For more information on CFPB itself, see CRS Report R41338, The Dodd-Frank Wall Street
Reform and Consumer Protection Act: Title X, The Consumer Financial Protection Bureau, by David H. Carpenter.

48

any significant alternatives to the proposed rule that accomplish the same objectives but
minimize any increase in the cost of credit for small entities.
5.

Nuclear Regulatory Commission

According to “Regulatory Analysis Guidelines of the U.S. Nuclear Regulatory
Commission” (NUREG/BR-0058, Rev. 4),168 the NRC is not statutorily required to
prepare regulatory analyses as part of its rulemaking process, but has been voluntarily
conducting them since 1976, and has been voluntarily complying with the general
regulatory analysis requirements applicable to Cabinet departments and independent
agencies since OMB began issuing regulatory analysis guidance in 1981 (primarily EO
12866 since it was issued in 1993).169 The NRC guidelines state that the “ultimate
objective of this regulatory process is to ensure that all regulatory burdens are needed, are
justified, and will achieve intended regulatory objectives with minimal impacts.”170 The
fourth revision of the guidelines was issued in 2004 to (among other things) make
“conforming changes based on OMB’s Circular A-4.”171 Specific elements that the
guidelines indicate should be included in an NRC regulatory analysis document include:


a statement of the problem and NRC objectives for the proposed regulatory
action;



identification and preliminary analysis of alternative approaches to the
problem;



estimation and evaluation of the values and impacts for selected alternatives,
including consideration of the uncertainties affecting the estimates;



the conclusions of the evaluation of values and impacts and, when
appropriate, the safety goal evaluation;



the decision rationale for selection of the proposed regulatory action; and



a tentative implementation schedule and implementation instrument for the
proposed regulatory action.172

168

See http://pbadupws.nrc.gov/docs/ML0428/ML042820192.pdf for a copy of these guidelines (hereafter referred to
as “NRC Guidelines”). The guidelines are also available at http://www.nrc.gov/reading-rm/doccollections/nuregs/brochures/br0058/br0058r4.pdf. For information on rulemaking at the NRC, see NRC Management
Directive 6.3, “The Rulemaking Process,” available at http://pbadupws.nrc.gov/docs/ML0516/ML051680185.pdf.
169
Also, an August 14, 2012, “notation vote paper” prepared for the NRC Commissioners by the NRC program staff
(SECY-12-0110) states “No legislation or regulation requires a regulatory analysis for NRC-initiated actions,” and that
“the regulatory analysis process may be modified or eliminated at the discretion of an NRC office director or higher
authority.” See http://www.nrc.gov/reading-rm/doc-collections/commission/secys/2012/2012-0110scy.pdf.
170
NRC Guidelines, p. 1.
171
Ibid., p. 2.
172
Ibid., p. 17.

49

In some cases (e.g., when a rule is a “significant regulatory action” as defined in EO
12866), the guidelines indicate that additional information may be beneficial, including
items in Circular A-4 such as “a more expansive treatment of monetized health and safety
benefits and the characterization of key attributes that are not readily quantified.”173
However, the guidelines also state that “NRC initiatives rarely meet the high economic
and policy thresholds of Circular A-4, and therefore, for most NRC regulatory analyses
this level of analysis would not be required nor justified given the increased level of
effort involved.”174 The guidelines also mention crosscutting analytical requirements in
the RFA, the PRA, and NEPA.175
In addition, a statutory provision known as the “backfit rule” requires the NRC to make
the determination that new requirements applied to operating facilities will result in a
“substantial increase in the overall protection of public health and safety,” and that this
increased protection justifies the direct and indirect costs of implementing the new
requirement.176 A “backfit” for a power reactor is defined as “the modification of or
addition to systems, structures, components, or design of a facility; or the design approval
or manufacturing license for a facility; or the procedures or organization required to
design, construct or operate a facility; any of which may result from a new or amended
provision in the Commission’s regulations or the imposition of a regulatory staff position
interpreting the Commission’s regulations that is either new or different from a
previously applicable staff position.”177 However, the backfit rule does not apply when
(among other things) the NRC finds that regulatory action is necessary to ensure that the
reactor “facility provides adequate protection to the health and safety of the public and is
in accord with the common defense and security.”178

a)

Prohibition on Considering Costs

According to an August 2012 “notation vote paper” from the NRC staff to the
Commissioners entitled “Consideration of Economic Consequences Within the U.S.
Nuclear Regulatory Commission’s Regulatory Framework,” “NRC requirements relating
to the adequate protection of public health and safety do not consider costs.”179 The
paper points out that Section 182 of the Atomic Energy Act (AEA), as amended, requires
173

Ibid., pp. 18-19.
Ibid., p. 19.
175
Ibid., pp. 36-38.
176
10 C.F.R. § 50.109(a)(3). The NRC regulation, 10 C.F.R. § 50.109, is the NRC’s backfit rule for nuclear power
reactors. The NRC has similar backfit rules for other types of facilities it regulates, namely, 10 C.F.R. § 70.76 (backfits
pertaining to licenses for the use and possession of special nuclear material), § 72.62 (backfits pertaining to
independent spent fuel storage installations and monitored retrievable storage installations) and § 76.76 (backfits
pertaining to gaseous diffusion plants).
177
10 C.F.R. § 50.109(a)(1).
178
10 C.F.R. § 50.109(a)(4)(ii).
179
“Consideration of Economic Consequences Within the U.S. Nuclear Regulatory Commission’s Regulatory
Framework,” SECY-12-0110, August 14, 2012, hereafter referred to as the “economic consequences” paper. See
http://www.nrc.gov/reading-rm/doc-collections/commission/secys/2012/2012-0110scy.pdf, p. 2.
174

50

the NRC to “take those actions it deems necessary to achieve ‘adequate protection’ of
public health and safety. Courts have interpreted the AEA to mean that costs must not be
considered by the NRC when it determines that a given regulatory action is necessary for
adequate protection.”180 Although the term “adequate protection” is not defined in the
statute, the paper says that it “must be defined without regard for the economic costs that
must be borne by the licensee.”181 Once the adequate protection standard has been
satisfied, as determined by the professional judgment of NRC’s technical staff, the NRC
may consider further protective and other measures, beyond “adequate protection.” For
these measures, the Commission can take costs into account under section 161 of the
AEA.”182
The August 2012 “economic consequences” paper was prepared to examine whether the
NRC’s regulatory framework should be changed in the wake of the Fukushima Dai-ichi
nuclear power plant accident, and laid out three options should the Commission want to
expand consideration of offsite property damage. The paper recommended that NRC
staff “systematically update and enhance regulatory analysis guidance,” saying such
action would “enhance the currency and consistency of the existing framework through
updates to guidance documents integral to performing cost-benefit analyses in support of
regulatory, backfit, and environmental analysis.”183
6.

Consumer Product Safety Commission

CPSC has rulemaking authority under at least nine statutes, including the Consumer
Product Safety Act (CPSA, 15 U.S.C. §§ 2051 et seq.); the Federal Hazardous Substances
Act (FHSA, 15 U.S.C. §§ 1261 et seq.); the Flammable Fabrics Act (FFA, 15 U.S.C. §§
1191 et seq.); and the Poison Prevention Packaging Act (PPPA, 15 U.S.C. §§ 1471 et
seq.). Before issuing a consumer product safety final rule under the CPSA,184 the agency
must satisfy several statutory analytical requirements:


15 U.S.C. § 2058(f)(1) states that the agency must “consider, and shall make
appropriate findings for inclusion in such rule with respect to - (A) the
degree and nature of the risk of injury the rule is designed to eliminate or
reduce; (B) the approximate number of consumer products, or types or

180

Ibid, Enclosure 3, “NRC Legal Authorities Concerning Offsite Property Damage.” See Union of Concerned
Scientists v. NRC, 824 F.2d 108 (D.C. Cir. 1987); Union of Concerned Scientists v. NRC, 880 F.2d 552 (D.C. Cir.
1989).
181
The paper states “If there is more than one method of achieving adequate protection, the NRC may take cost into
account in selecting the method. Only in this event may the NRC take cost into account for adequate protection
matters. 10 CFR 50.109(a)(7) (‘[S]hould it be necessary or appropriate for the Commission to prescribe a specific way
to comply with its requirements or to achieve adequate protection, then cost may be a factor in selecting the way,
provided that the objective of compliance or adequate protection is met.’)”
182
Union of Concerned Scientists v. NRC, 824 F.2d 108 (D.C. Cir. 1987); Union of Concerned Scientists v. NRC, 880
F.2d 552 (D.C. Cir. 1989).
183
NRC Notation Vote Paper, p. 9.
184
The statute also establishes requirements before the issuance of proposed rules (15 U.S.C. § 2058 (c)). The focus of
this report is on analytical requirements for final rules.

51

classes thereof, subject to such rule; (C) the need of the public for the
consumer products subject to such rule, and the probable effect of such rule
upon the utility, cost, or availability of such products to meet such need; and
(D) any means of achieving the objective of the order while minimizing
adverse effects on competition or disruption or dislocation of manufacturing
and other commercial practices consistent with the public health and safety.”


15 U.S.C. § 2058(f)(2) states that CPSC “shall not promulgate a consumer
product safety rule unless it has prepared ... a final regulatory analysis of the
rule containing the following information: (A) A description of the potential
benefits and potential costs of the rule, including costs and benefits that
cannot be quantified in monetary terms, and the identification of those likely
to receive the benefits and bear the costs. (B) A description of any
alternatives to the final rule which were considered by the Commission,
together with a summary description of their potential benefits and costs and
a brief explanation of the reasons why these alternatives were not chosen.
(C) A summary of any significant issues raised by the comments submitted
during the public comment period in response to the preliminary regulatory
analysis, and a summary of the assessment by the Commission of such issues.
The Commission shall publish its final regulatory analysis with the rule.”



15 U.S.C. § 2058(f)(3) says the Commission “shall not promulgate a consumer
product safety rule unless it finds (and includes such finding in the rule) - (A)
that the rule (including its effective date) is reasonably necessary to
eliminate or reduce an unreasonable risk of injury associated with such
product; (B) that the promulgation of the rule is in the public interest; (C) in
the case of a rule declaring the product a banned hazardous product, that no
feasible consumer product safety standard under this chapter would
adequately protect the public from the unreasonable risk of injury associated
with such product; (D) in the case of a rule which relates to a risk of injury
with respect to which persons who would be subject to such rule have
adopted and implemented a voluntary consumer product safety standard,
that - (i) compliance with such voluntary consumer product safety standard
is not likely to result in the elimination or adequate reduction of such risk of
injury; or (ii) it is unlikely that there will be substantial compliance with such
voluntary consumer product safety standard; (E) that the benefits expected
from the rule bear a reasonable relationship to its costs; and (F) that the rule
imposes the least burdensome requirement which prevents or adequately
reduces the risk of injury for which the rule is being promulgated.”

Other CPSC authorizing statutes contain similar analysis requirements. For example, for
final product safety rules issued under the Federal Hazardous Substances Act, 15 U.S.C.
§ 1262(i)(1) states:
The Commission shall not promulgate a regulation under section 1261(q)(1) of this title
classifying an article or substance as a banned hazardous substance or a regulation under
subsection (e) of this section unless it has prepared a final regulatory analysis of the

52

regulation containing the following information: (A) A description of the potential
benefits and potential costs of the regulation, including costs and benefits that cannot be
quantified in monetary terms, and the identification of those likely to receive the benefits
and bear the costs. (B) A description of any alternatives to the final regulation which
were considered by the Commission, together with a summary description of their
potential benefits and costs and a brief explanation of the reasons why these alternatives
were not chosen. (C) A summary of any significant issues raised by the comments
submitted during the public comment period in response to the preliminary regulatory
analysis, and a summary of the assessment by the Commission of such issues. The
Commission shall publish its final regulatory analysis with the regulation.

The statute goes on to say that the Commission must conclude “that the benefits expected
from the regulation bear a reasonable relationship to its costs,” and that the rule “imposes
the least burdensome requirement which prevents or adequately reduces the risk of injury
for which the regulation is being promulgated.” Similar requirements can be found in the
Flammable Fabrics Act (15 U.S.C. § 1193(j)).

a)

PPPA Rules

However, CPSC rules issued pursuant to the Poison Prevention Packaging Act of 1970
(15 U.S.C. § 1472), as amended by the Consumer Product Safety Improvement Act of
2008 (CPSIA, P.L. 110-314), do not appear to be required to have a cost-benefit analysis.
Specifically, Section 233 of CPSIA amended Section 3 of the PPPA as follows:
Nothing in this Act shall be construed to require the Consumer Product Safety
Commission, in establishing a standard under this section, to prepare a comparison of the
costs that would be incurred in complying with such standard with the benefits of such
standard.

CPSC Commissioner Robert S. Adler said this provision means that “while cost- benefit
analysis was not forbidden, it was not necessary.”185 However, he also said
the Commission must consider a host of factors before moving forward with PPPA
rulemaking, including the reasonableness of the proposed standard, the available
scientific, medical, and engineering data, the manufacturing practices of affected
industries, and the nature and use of the specific household substance in question.
Although these findings do not constitute a formal cost-benefit analysis, they cover much
of the same terrain, and do so in a way best designed for the type of regulation envisioned
in the PPPA.

b)

July 2011 Hearing

On July 7, 2011, the Subcommittee on Oversight and Investigations of the House
Committee on Energy and Commerce held a hearing at which several independent
regulatory agencies testified about their response to the issuance of Executive Order
185

Statement of Commissioner Robert S. Adler Regarding the Notice of Proposed Rulemaking Requiring ChildResistant Packaging for Imidazolines,” January 19, 2012, available at http://www.cpsc.gov/pr/adler01192012_1.pdf.

53

13563.186 CPSC Commissioner Adler testified that the Commission has been required
since 1981 amendments to the CPSA to “conduct an extensive cost-benefit analysis when
we promulgate safety rules.”187 He said these statutory provisions (15 U.S.C. §
2058(f)(1), 15 U.S.C. § 2058(f)(2), and 15 U.S.C. § 2058(3)) “easily match, if not
surpass, in their stringency and scope the cost-benefit provisions of the various executive
orders on cost-benefit analysis recommended by the Office of Management and
Budget.”188 Commissioner Adler also noted, however, that the agency has issued only
nine mandatory safety rules in the last 30 years, “opting instead to work with the
voluntary standards sector and to negotiate individual Corrective Action Plans for the
recall of specific hazardous products.”189 He also said that certain labeling requirements
do not require the same level of regulatory analysis as other types of safety rules.
Another perspective was offered at the July 2011 hearing by CPSC Commissioner Anne
M. Northup, who said that most of the regulations mandated by CPSIA are not required
to be issued pursuant to the above-mentioned provisions that require cost-benefit
analysis, and that the Commission “has never conducted a full cost-benefit analysis of
any regulation we have promulgated under the CPSIA.”190 She also said that such an
analysis would reveal that many of the regulations that the act required to be issued
“cannot be justified.”
7.

Federal Trade Commission

The Federal Trade Commission Act (15 U.S.C. § 46) gives the FTC the authority to issue
trade regulations that define certain acts to be “unfair or deceptive,” or practices “in or
affecting commerce.” The agency also has rulemaking authority under a variety of other
statutes, including the Controlling the Assault of Non-Solicited Pornography and
Marketing Act of 2003 (CAN-SPAM Act), which requires the FTC to consider (among
other things) the “burdens imposed on senders of lawful commercial electronic mail.”191
Perhaps more notably, the Federal Trade Commission Improvements Act of 1980 (P.L.
96-252, 94 Stat. 374) states that any covered rule192 promulgated by the FTC under
Sections 46 and 57a of Title 15, United States Code, must include
(A) a concise statement of the need for, and the objectives of, the final rule; (B) a
description of any alternatives to the final rule which were considered by the
Commission; (C) an analysis of the projected benefits and any adverse economic effects
and any other effects of the final rule; (D) an explanation of the reasons for the
determination of the Commission that the final rule will attain its objectives in a manner
186

See http://www.gpo.gov/fdsys/pkg/CHRG-112hhrg72377/pdf/CHRG-112hhrg72377.pdf for the full hearing record.
See http://republicans.energycommerce.house.gov/Media/file/Hearings/Oversight/070711/Adler.pdf, p. 1.
188
Ibid., pp. 2-3.
189
Ibid., p. 1.
190
See http://republicans.energycommerce.house.gov/Media/file/Hearings/Oversight/070711/Northup.pdf, p. 5.
191
15 U.S.C. § 7704 (c)(1).
192
Amendments to existing rules are covered only if they are expected to have certain economic effects (e.g., a $100
million annual effect on the national economy).
187

54

consistent with applicable law and the reasons the particular alternative was chosen; and
(E) a summary of any significant issues raised by the comments submitted during the
public comment period in response to the preliminary regulatory analysis, and a summary
of the assessment by the Commission of such issues. 193

The FTC is also required to include in each rule “a statement of the manner in which the
public may obtain copies of the preliminary and final regulatory analyses.”194

C.

Agencies With No Specific Analytical Requirements

Although most independent regulatory agencies are required to at least “consider” certain
factors before issuing certain rules, other agencies are not covered by such requirements.
As noted above, the NRC is not statutorily required to prepare cost-benefit analyses for
any of its rules (although the agency said it has voluntarily done so for decades). Also,
although the FCC issues rules under a variety of statutes (e.g., the Communications Act
of 1934 (47 U.S.C. § 151 et seq.); the Children’s Internet Protection Act (P.L. 106-554,
114 Stat. 2763); and the Protecting Children in the 21st Century Act (15 U.S.C. § 6551 et
seq.)), none of these statutes require the FCC to conduct cost-benefit or other types of
analyses before issuing regulations. FCC officials confirmed to the author of this report
that, aside from the RFA and the PRA, there are currently no statutory provisions that
specifically require the FCC to prepare a cost-benefit analysis or other type of economic
analysis.195
FERC also does not appear to be required to prepare cost-benefit analyses before issuing
its regulations. The agency has rulemaking authority under the Public Utility Regulatory
Policies Act of 1978 (16 U.S.C. § 2601 et seq.); the Natural Gas Act of 1938 (15 U.S.C. §
717 et seq.); and the Federal Power Act, as amended (16 U.S.C. § 791(a) et seq.). None
of these statutes explicitly require cost-benefit analysis.

D.

What Does “Consider” Costs and Benefits Mean?

The discussion in the previous sections is summarized in Table 3 below, which indicates
that only three of these independent regulatory agencies are specifically required to
prepare some type of cost-benefit analysis before issuing certain final rules. Most of the
other statutory provisions mentioned above only require the agencies to “consider” the
economic effects of their regulatory actions, or do not require an analysis at all.
193

15 U.S.C. § 57b-3(b)(2).
15 U.S.C. § 57b-3(b)(3).
195
FCC officials said that although some might interpret the APA’s requirement for “reasoned decision making” as an
analytical requirement, it does not specifically require the agency to do any type of analysis. They also said there were
a few provisions in statute that require the agency to “consider” certain factors (e.g., a requirement in the
Telecommunications Act of 1996 that the agency consider whether competition has made certain rules unnecessary,
and therefore should be repealed or amended), but they do not apply to all FCC rulemaking and do not require the
preparation of a cost-benefit analysis.
194

55

Table 3: Summary of Selected Agency-Specific Statutory Analytical Requirements
Agency

Statutory Analytical Requirements

Cost-benefit analysis requirements
CPSC (consumer product
safety and other rules)

Prepare regulatory analysis describing potential benefits and costs of rule, benefits
and costs of alternatives considered, and why alternatives not selected (15 U.S.C. §
2058(f)(2).

Federal Reserve (electronic
funds transfers)

Prepare an analysis of economic impact that considers the costs and benefits to
financial institutions, consumers, and other users of electronic fund transfers (15
U.S.C. § 1693b).

FTC

Include statement of need/objectives, analysis of projected benefits and any adverse
effects, and an explanation of why the alternative was chosen (15 U.S.C. § 57b3(b)(2)).

“Consider” requirements
SEC

Consider, in addition to the protection of investors, whether the action will
promote efficiency, competition, and capital formation (e.g., 15 U.S.C. § 77b(b)).
Also, consider the impact of the rule on competition (15 U.S.C. § 78w(a)(2)).

CFTC

Consider the costs and benefits of the action of the Commission before
promulgating a regulation (7 U.S.C. § 19(a)).

Banking agencies (Riegle Act)

Consider any administrative burdens that a rule would place on depository
institutions, as well as the benefits of the rule (12 U.S.C. § 4802(a)).

CFPB (Dodd-Frank Act)

Consider the potential benefits and costs of upcoming rules on consumers and
others (12 U.S.C. § 5512).

No Requirements
FCC

None.

FERC

None.

NRC

None.

Source: Analysis of agency-specific statutory requirements.

It is unclear whether a requirement that an agency “consider” costs and benefits or other
factors constitutes a requirement that the agency prepare a formal cost-benefit analysis.
As noted previously, the SEC’s March 2012 guidance says “No statute expressly requires
the Commission to conduct a formal cost-benefit analysis as part of its rulemaking
activities.” Likewise, the CFTC Office of General Counsel and Office of Chief
Economist concluded that 7 U.S.C. § 19(a) “does not require the Commission to quantify
the costs and benefits of a rule or to determine whether the benefits of the order outweigh
its costs; rather, it requires that the Commission ‘consider’ the costs and benefits of its
actions.”196
However, others in these agencies have taken a different view. For example, in opening
remarks at a February 2011 meeting on rulemakings under the Dodd-Frank Act, CFTC
196

The template was replicated in the CFTC OIG report, available at
http://www.cftc.gov/ucm/groups/public/@aboutcftc/documents/file/oig_investigation_061311.pdf. The quoted
material is on p. 3 of that report.

56

Commissioner Jill E. Sommers noted that the agency’s rules contain “very short,
boilerplate ‘Cost-Benefit Analysis’ sections” noting that the Commission need only
“consider” costs and benefits.197 She then asked “how can we appropriately consider
costs and benefits if we make no attempt to quantify what the costs are?” She went on to
say the following:
But more importantly from a good government perspective, while it is true that Section
15(a) of the Commodity Exchange Act does not require the Commission to quantify the
cost of a proposal, or to determine whether the benefits outweigh the costs, Section 15(a)
certainly does not prohibit the Commission from doing so. We simply have chosen not to.
Clearly, when it comes to cost-benefit analysis, the Commission is merely complying
with the absolute minimum requirements of the Commodity Exchange Act. That is not in
keeping with the spirit of the President’s recent Executive Order on “Improving
Regulation and Regulatory Review.” We owe the American public more than the
absolute minimum. As we add layer upon layer of rules, regulations, restrictions and new
duties, we should be attempting to quantify the costs of what we are proposing. And we
should most certainly attempt to determine whether the costs outweigh the benefits. The
public deserves this information and deserves the opportunity to comment on our
analysis. That is good government. Our failure to conduct a critical analysis of costs and
benefits simply because we are not required to is not good government. 198

In February 2012, another CFTC Commissioner, Scott D. O’Malia, said “we set the bar
low here at the Commission for our cost-benefit analyses, and accept what is ‘reasonably
feasible.’” He went on to say that he had “reached a tipping point and can no longer
tolerate the application of such weak standards to analyzing the costs and benefits of our
rulemakings. Our inability to develop a quantitative analysis, or to develop a reasonable
comparative analysis of legitimate options, hurts the credibility of this Commission and
undermines the quality of our rules.199
1.

Business Roundtable v. SEC

Certain courts have recently viewed these “consider” provisions as effectively requiring
some type of detailed cost-benefit analysis. For example, on July 22, 2011, in Business
Roundtable v. SEC,200 the U.S. Court of Appeals for the District of Columbia Circuit
vacated an SEC final rule on proxy access,201 saying the Commission acted arbitrarily
and capriciously for having failed to assess the economic implications of a rule
adequately.202 The Court specifically referenced (on p. 3 of the opinion) the requirements
197

See http://www.cftc.gov/PressRoom/SpeechesTestimony/sommerstatement022411 for a copy of these remarks.
Ibid.
199
Opening Statement of Commissioner Scott D. O’Malia Regarding Open Meeting on One Final Rule and One
Proposed Rule, February 23, 2012, available at
http://www.cftc.gov/PressRoom/SpeechesTestimony/omaliastatement022312.
200
647 F.3d 1144 (D.C. Cir. 2011).
201
U.S. Securities and Exchange Commission, “Facilitating Shareholder Director Nominations,” 75 Federal Register
56668, September 16, 2010.
202
See http://www.cadc.uscourts.gov/internet/opinions.nsf/89BE4D084BA5EBDA852578D5004FBBBE/$file/101305-1320103.pdf to view a copy of this decision.
198

57

in Section 3(f) of the Exchange Act and Section 2(c) of the Investment Company Act of
1940 that the SEC “consider” the impact of the rule on efficiency, competition, and
capital formation. Although the SEC had lengthy discussions in the final rule of
paperwork burden (14 pages in the Federal Register), a “cost-benefit analysis” (17
pages), effects on competition and other factors (5 pages), and an RFA analysis (3 pages),
the Court said (on p. 7 of the opinion) that the SEC had “inconsistently and
opportunistically framed the costs and benefits of the rule; failed adequately to quantify
the certain costs or to explain why those costs could not be quantified; neglected to
support its predictive judgments; contradicted itself; and failed to respond to substantial
problems raised by commenters.” Citing an earlier case involving the SEC,203 the Court
said that the agency has a “statutory obligation to determine as best it can the economic
implications of the rule.”
The Business Roundtable decision has evoked a sizable and varied reaction. Some
observers have concluded that this decision has “elevated the importance of economic
analysis in rulemaking to implement” the Dodd-Frank Act.204 Another said the decision
was “a warning shot across the bow that the analysis must be professional and capable of
withstanding rigorous attack.”205 Henry G. Manne, dean emeritus at the George Mason
University School of Law, wrote that the decision “seems to stand for the proposition that
many agency rules…will now have to stand the test of a rigorous cost-benefit analysis
before they can receive the sanction of legality.”206 One article indicated that the SEC had
become “gun-shy” after losing this case, and had become “reluctant to publish its
remaining rules until the proposals have been thoroughly vetted.”207 Harvey Goldshmid,
a law professor at Columbia and a former SEC commissioner, was quoted as saying that
the Court had “given tremendous power to business groups, causing the agencies to
operate out of fear.”208 Another article indicated that the Business Roundtable decision
calls into question the practical ability of the SEC and other financial regulatory agencies
with statutory economic analysis mandates to adopt future rules that will withstand timely
challenge. Other financial regulators are alarmed, and with good reason, since their
economic analyses of their own rules are generally less sophisticated than the SEC’s. 209
203

Chamber of Commerce v. SEC, 412 F.3d 133, 143 (D.C. Cir. 2005). In this case, the court held that the Commission
violated the Administrative Procedure Act by not adequately considering the costs mutual funds would incur to comply
with the rule and by failing adequately to consider a proposed alternative to one provision in the rule. The court also
cited American Equity Investment Life Insurance Company v. SEC, 613 F.3d 166, 167–68 (D.C. Cir. 2010) as another
case in which the SEC failed “adequately to assess the economic effects of a new rule.”
204
See, for example, Yin Wilczek, “D.C. Circuit’s Proxy Access Ruling Raises Importance of Economic Review, Panel
Says,” BNA Daily Report for Executives, August 2, 2011, p. EE-4; and David S. Hilzenrath, “Wall Street Finds Relief
in Court from SEC Rules,” Washington Post, August 12, 2011, p. A-10.
205
Robert Barnett, “The Need for Rigorous Cost-Benefit Analysis in Regulations,” BSN Newsletter, May 2012,
available at http://www.bsnlawfirm.com/newsletter/OP0512_Barnett.pdf.
206
Henry G. Manne, “Economics and Financial Regulation,” Regulation, Summer 2012, p. 23, available at
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2102793.
207
Peter Madigan, “Cost-benefit defeat weighing on ‘gun-shy’ SEC,” Risk Magazine, July 4, 2012, available at
http://www.risk.net/risk-magazine/feature/2189269/cost-benefit-defeat-weighing-gun-shy-sec.
208
Ben Protess, “As Wall Street Fights Regulation, It Has Backup on the Bench,” New York Times, September 24,
2012, available at http://dealbook.nytimes.com/2012/09/24/as-wall-street-fights-regulation-it-has-backup-on-thebench/?src=rechp&pagewanted=print.
209
Bruce Kraus and Connor Raso, “Rational Boundaries for SEC Cost-Benefit Analysis,” Yale Journal on Regulation,
volume 2 (2013 forthcoming), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2139010.

58

Citing the Business Roundtable decision, several business groups subsequently filed legal
actions questioning the analyses used in two CFTC rules.210 In October 2012, the
American Petroleum Institute (with the Chamber of Commerce and other parties) filed a
complaint in the District Court for the District of Columbia against the SEC, alleging
(among other things) that the agency “paid lip service to the requirement for cost benefit
analysis.”211 In November 2012, the SEC was sued over the agency’s rule regarding
conflict minerals from the Congo, citing questions regarding whether the Commission’s
economic analysis was sufficient.212 Paul Clement, former solicitor general during the
George W. Bush Administration, was quoted as saying “It’s common-sense litigation 101.
If you keep winning, you keep going back.”213

a)

Objections to Business Roundtable

Some, however, view the D.C. Circuit’s decision in the Business Roundtable case and in
other cases as legally flawed. For example, in a 2012 article in the Texas Law Review,
James D. Cox and Benjamin J.C. Baucom said that the “level of review invoked by the
D.C. Circuit in Business Roundtable and its earlier decisions is dramatically inconsistent
with the standard enacted by Congress.” 214 The authors described the legislative history
of the SEC’s review standard that was added to existing law by the National Securities
Markets Improvement Act of 1996 (i.e., that the agency consider whether the action
would “promote efficiency, competition, and capital formation”), noting that a
requirement that the SEC “demonstrate serious economic analysis” that was in the
competing Senate bill was not agreed to by House-Senate conferees.215 They also said
the following:

210

See International Swaps and Derivatives Ass’n v. Commodity Futures Trading Commission, Civil Action No. 1:11CV-2146-RLW (D.D.C. Dec. 2011), in which the organizations said that the requirement to evaluate costs and benefits
in light of certain factors “requires the Commission to conduct a cost-benefit analysis.” See also Investment Co.
Institute v. United States Commodity Futures Trading Commission, Civil Action No. 1:12-cv00612 (D.D.C. April
2012). In December 2012, the district court granted CFTC’s motion for summary judgment and dismissed plaintiffs’
challenge to the commission’s cost-benefit analysis. See 2012 U.S. Dist. LEXIS 175941 (D.D.C. Dec. 12, 2012),
appeal docketed, No. 12-cv-00612 (D.C. Cir. Dec. 27, 2012).
211
American Petroleum Institute, et al. v. United States Securities and Exchange Commission, Civil Action No. 121668 (D.D.C. Oct. 10, 2012), available at
http://www.chamberlitigation.com/sites/default/files/cases/files/2012/Complaint%20-%20API%20and%20Chamber%20of%20Commerce,%20et%20al.%20v.%20SEC%20%28D.C.%20District%20Court
%29.PDF.
212
National Association of Manufacturers v. United States Securities and Exchange Commission, Civil Action no. 121422, United States Court of Appeals for the District of Columbia Circuit, November 21, 2012.
213
Ben Protess, “As Wall Street Fights Regulation, It Has Backup on the Bench,” New York Times, September 24,
2012, available at http://dealbook.nytimes.com/2012/09/24/as-wall-street-fights-regulation-it-has-backup-on-thebench/?src=rechp&pagewanted=print.
214
James D. Cox and Benjamin J.C. Baucom, “The Emperor Has No Clothes: Confronting the D.C. Circuit’s
Usurpation of SEC Rulemaking Authority,” Texas Law Review, volume 90 (2012), pp. 1812-1847.
215
Others, however, take a different view of congressional intent. Citing language in the House committee report for
the 1996 legislation, and the Conference report for the 1999 legislation, Hester Peirce of the Mercatus Center at George
Mason University argues that Congress wanted the SEC to do cost-benefit analyses for the agency’s rules. See
“Economic Analysis by Federal Financial Regulators,” Working Paper No. 12-31, October 2012, available at
http://mercatus.org/sites/default/files/FinancialRegulators_Peirce_v1-0_1.pdf, pp. 13-14.

59

Looking just at the language of the statute, the operative verb in the Review Standard is
“consider”: the Review Standard does not require the SEC to “determine” whether a rule
will actually promote efficiency, competition, or capital formation. In fact, Congress
included a “determination” requirement in the first draft of the provision, then removed it
in subsequent versions.
The contemporary meaning of “consider” suggests that if, after “considering” whether a
proposed rule would “promote efficiency, competition, and capital formation,” the SEC
concludes that it would not promote those goals, the Review Standard does not require
the SEC to abandon the rule. Indeed, the plain import of the Review Standard is that it
does not require the SEC to come to a conclusion about a proposed rule’s effect on
efficiency, competition, and capital formation; it does not prevent adoption of a rule
because of indeterminacy of the rule’s impact. For that matter, the plain language of the
Review Standard does not require the SEC to state a strong reason why a rule should be
passed even if, upon consideration, it appears the rule would not promote efficiency,
competition, or capital formation.216

The authors said that the different review standards established for other agencies
“further supports the view that Congress, when it wished for costs and benefits to be
assessed, certainly knew how to impose that requirement for an agency’s rulemaking.”217
A forthcoming article in the Yale Journal on Regulation by Bruce Kraus and Connor
Raso takes a similar position, arguing that the Court’s substantive criticism of the SEC in
the Business Roundtable decision was “unfounded under any procedural standard.”218
The authors also said the decision “has left the SEC and other independent financial
regulators in a tough spot, as far as future rulemaking is concerned, especially with
dozens of rules mandated by Dodd-Frank in the works.” They said the agency faces a
“significant analytic burden” that
may not be theoretically possible to meet, even absent resource constraints. The SEC and
CFTC are required by law to regulate new markets, notably the notoriously opaque
derivatives markets, where data are scare largely because there has been no regulation
before. This burden is compounded by the fact that the agencies find themselves faced at
the time of this writing with small budget increases from a Congress that would never
have passed Dodd-Frank to begin with.219

Kraus and Raso also argue that the assumption of rationality underlying cost-benefit
analysis may conflict with the bipartisan commission structure of independent regulatory
agencies in which “logrolling” compromises are often needed to reach a decision. In an
interview with the author of this report, Kraus said his overall view was that economic
analyses should be informative, not dispositive, in regulatory decision making.

216

Ibid., p. 1821.
Ibid., p. 1823.
218
Bruce Kraus and Connor Raso, “Rational Boundaries for SEC Cost-Benefit Analysis,” Yale Journal on Regulation,
volume 2 (2013 forthcoming), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2139010. Kraus was
co-chief counsel of the SEC’s Division of Risk, Strategy, and Financial Innovation. Raso is an attorney-advisor in the
Office of General Counsel at the Consumer Financial Protection Bureau. See also Dennis Kelleher, et al., Setting the
Record Straight on Cost-Benefit Analysis and Financial Reform at the SEC: A Report from Better Markets, Inc. (Jul.
30, 2012), which says at p. 19 that the “plain fact is that the Securities Laws do not include any language requiring the
SEC to conduct cost-benefit analysis when it promulgates rules.”
219
Ibid., p. 29.
217

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V. Previous Reports Examining Economic Analysis
Practices at Independent Regulatory Agencies
A number of reports and other documents have been published during the previous two
years providing information regarding the extent to which independent regulatory
agencies are required to prepare cost-benefit and other types of analysis in connection
with their rulemaking activities, and the extent to which these agencies actually do so.
These include OMB’s annual reports on the costs and benefits of federal regulations,
inspectors general reports, two GAO reports, and papers prepared by scholars in the area.

A.

OMB Reports on Regulatory Costs and Benefits

OMB’s annual reports on the costs and benefits of regulations indicate the extent to
which different types of federal agencies are estimating the costs and benefits of their
rules.220 Although the OMB reports primarily focus on major rules issued by Cabinet
departments and independent agencies, they also include a brief discussion of major rules
issued by independent regulatory agencies. Because OMB does not review independent
regulatory agencies’ rules under Executive Orders 13563 and 12866, the OMB reports
state that this discussion is based solely on data provided by these agencies to GAO under
the Congressional Review Act.
In its draft 2012 report, OMB said that Cabinet departments and independent agencies
issued a total of 54 major final rules during FY2011.221 Thirty of the 54 rules were
considered budget “transfer” rules, and the agencies quantified and monetized the transfer
amounts in all of them. For 13 of the remaining 24 rules, the issuing agencies quantified
and monetized both benefits and costs, with annual costs estimated to be between $5.0
billion and $10.2 billion, and annual benefits estimated between $34.3 billion and $98.5
billion. The issuing agencies were able to estimate only costs in six other rules
(estimated to be between $400 million and $1.1 billion), and were able to estimate only
benefits in three rules (estimated to be between $600 million and $700 million). For the
final two rules, neither benefits nor costs were quantified and monetized.

220

In 2001, Section 624 of the Treasury and General Government Appropriations Act, 2001, (31 U.S.C. § 1105 note),
sometimes known as the “Regulatory Right-to-Know Act,” put in place a permanent requirement for an OMB report on
regulatory costs and benefits. Specifically, it requires OMB to prepare and submit with the President’s budget an
“accounting statement and associated report” containing an estimate of the total costs and benefits (including
quantifiable and nonquantifiable effects) of federal rules and paperwork, to the extent feasible, (1) in the aggregate, (2)
by agency and agency program, and (3) by major rule.
221
U.S. Office of Management and Budget, Draft 2012 Report to Congress on the Benefits and Costs of Federal
Regulations and Unfunded Mandates on State, Local and Tribal Entities, available at
http://www.whitehouse.gov/sites/default/files/omb/oira/draft_2012_cost_benefit_report.pdf. A final version of this
report was issued in April 2012, but the numbers reported for independent regulatory agencies did not change. See
http://www.whitehouse.gov/sites/default/files/omb/inforeg/2012_cb/2012_cost_benefit_report.pdf.

61

During the same period, five independent regulatory agencies issued 17 major rules (most
of which were designed to regulate the financial sector). In Table 1-7 of the OMB draft
report, OMB interpreted GAO’s major rule reports to indicate that, although 11 of the 17
rules had some information on benefits or costs, the issuing agencies did not monetize
both the expected benefits and costs of any of the rules. The SEC provided some benefit
or cost information for 9 of its 10 rules; the agency monetized costs for 5 rules, but did
not monetize benefits in any of them. In contrast, OMB said the GAO reports indicated
that the Federal Reserve System did not estimate benefits or costs for any of its four
major rules. The NRC reportedly monetized the cost of its one rule, but did not monetize
the benefits. CFTC and CPSC each issued one major rule, but reportedly did not estimate
the benefits or costs in either of them.
OMB said in the draft report that it does not review the substance of rules issued by these
independent regulatory agencies, and “does not know whether the rigor of the analyses
conducted by the agencies is similar to that of the analyses performed by agencies subject
to OMB review.”222 OMB went on to say that obtaining better information on the
benefits and costs of rules issued by independent regulatory agencies would be “highly
desirable,” and said the “absence of such information is a continued obstacle to
transparency, and it might also have adverse effects on public policy.”223 The draft report
noted that Executive Order 13579 had requested (but not required) that independent
regulatory agencies follow the general principles of Executive Orders 12866 and 13563.
1.

Previous OMB Reports

Previous OMB reports evidenced the same patterns of analysis, with Cabinet department
and independent agencies more frequently reporting cost and/or benefit information for
their rules (particularly those rules not involving transfer payments). For example:


In the 2011 report (reflecting FY2010 rules), OMB reported that Cabinet
departments and independent agencies issued a total of 66 major final
rules.224 For 32 budget transfer rules, the agencies monetized only the
transfer amounts. For 18 of the remaining 34 rules, the issuing agencies
quantified and monetized both benefits and costs. For 10 other rules, the
agencies monetized only costs or benefits, but not both. For six rules, the
agencies did not quantify or monetize benefits or costs. The OMB report
(Table 1-7) also indicated that, according to the GAO major rule reports,
independent regulatory agencies did not provide monetized estimates of
both costs and benefits for any of the 17 major rules they issued during
FY2010. The report said that the SEC monetized costs for six of its nine rules,
and in one joint rule issued by the FTC and the Federal Reserve System, the

222

Ibid., p. 28.
Ibid., pp. 28-29.
224
Office of Management and Budget, 2011 Report to Congress on the Benefits and Costs of Federal Regulations and
Unfunded Mandates on State, Local, and Tribal Entities, June 2011, available at http://www.whitehouse.gov/sites/
default/files/omb/inforeg/2011_cb/2011_cba_report.pdf.
223

62

agencies assessed only costs. The Federal Reserve System issued five other
rules, but reportedly did not provide monetized estimates of benefits for
costs in any of them.


In the 2010 report (reflecting FY2009 rules), OMB reported that Cabinet
departments and independent agencies issued 66 major final rules, including
22 budget transfer rules. Of the remaining 44 rules, the agencies reportedly
quantified and monetized both benefits and costs for 16 of the rules. The
agencies estimated only costs in 12 rules, and estimated only benefits in
three Department of the Interior bird-hunting rules. Reportedly using
information from GAO’s major rule reports, Table 1-7 of the OMB report
indicates that independent regulatory agencies issued 13 major final rules,
and monetized both costs and benefits for only one of the rules (issued by the
SEC). In five other rules (three issued by the SEC and two issued by the NRC),
the agencies monetized only costs. The Federal Reserve System reportedly
did not provide information on benefits or costs for any of its three rules.225



In the 2009 report (reflecting FY2008 rules), OMB reported that Cabinet
departments and independent agencies issued 42 major final rules, including
21 budget transfer rules. Of the remaining 21 social regulations, the agencies
quantified and monetized both benefits and costs for 13 of the rules. In six
rules the agencies monetized only costs, and monetized only benefits in one
bird-hunting rule. Table 1-7 interprets GAO’s major rule reports to indicate
that independent regulatory agencies issued 11 major final rules, and
monetized both costs and benefits for only one of the rules (issued by the
NRC). In two other rules (one each by the NRC and the Federal Energy
Regulatory Commission), the agencies monetized only costs. The FCC
reportedly did not provide information on costs or benefits for any of its four
rules.226



In the 2008 report (reflecting FY2007 rules), OMB reported that Cabinet
departments and independent agencies issued 40 major final rules. For the
18 social regulations (i.e., non-transfer rules), they quantified and monetized
both benefits and costs for 12 of the rules. Four of the remaining six rules
were homeland security rules in which only costs were monetized,227 and
two rules were bird-hunting rules for which only benefits were monetized.
Using information from GAO’s major rule reports, Table 1-7 says that
independent regulatory agencies issued 10 major final rules during this

225

See http://www.whitehouse.gov/sites/default/files/omb/legislative/reports/2010_Benefit_Cost_Report.pdf for a copy
of this report.
226
See http://www.whitehouse.gov/sites/default/files/omb/assets/legislative_reports/
2009_final_BC_Report_01272010.pdf for a copy of this report.
227
OMB has frequently noted that most homeland security rules do not have quantified or monetized estimates of
benefits. See, for example, http://www.whitehouse.gov/omb/assets/legislative_reports/
2009_final_BC_Report_01272010.pdf.

63

period, only one of which (issued by the SEC) had monetized benefits and
costs. Two other rules reportedly had only monetized benefits and two
others had only monetized costs.228
2.

Summary

Table 4 below summarizes the information provided in OMB’s 2008 report through the
draft 2012 report regarding independent regulatory agencies’ rules issued from FY2007
through FY2011 (reportedly relying on information from GAO’s major rule reports). The
SEC issued 38 of the 68 final rules issued by independent regulatory agencies during this
period (nearly 56%), and accounted for 37 of the 47 rules (nearly 79%) that reportedly
had at least some information on benefits or costs. Nineteen of the 38 SEC rules (50%)
contained monetized cost information, and 6 of the 7 NRC rules (nearly 86%) did so. In
comparison, the other independent regulatory agencies were reportedly much less likely
to provide monetized cost information (only 2 out of 23 rules, or less than 9%). None of
the agencies were described as frequently providing information on monetized benefits (4
out of 68 rules, or less than 6%), and some agencies reportedly provided neither
monetized costs nor benefits for any of their rules (e.g., 13 Federal Reserve System
(FRS) rules, and 6 FCC rules).
Table 4: OMB Data on Benefit and Cost Information in Major Rules Issued by
Independent Regulatory Agencies, FY2007 - FY2011
Agency

Major Final Rules
Issued

Rules with Some
Information on
Benefits or Costs

Rules with
Monetized
Benefits

Rules with
Monetized Costs

CFTC

1

1

0

0

CPSC

1

0

0

0

FCC

6

0

0

0

FERC

1

1

0

1

FRS

13

1

0

0

NRC

7

6

1

6

SEC

38

37

3

19

FRS/FTC

1

1

0

1

Total

68

47

4

27

Source: OMB annual reports on regulatory costs and benefits, 2008 through 2012.

228

See http://www.whitehouse.gov/sites/default/files/omb/assets/information_and_regulatory_affairs/2008_cb
_final.pdf for a copy of this report.

64

3.

Analysis of the OMB Reports

The OMB reports describing the degree to which independent regulatory agencies
provide cost and benefit information are widely quoted,229 including by the seven former
OIRA Administrators in their September 2012 letter supporting S. 3468. 230 Therefore, it
is important to examine the underlying GAO reports as well as the rules that those reports
describe to validate the information that OMB provided.
In the executive summary of the 2012 draft OMB report (reflecting rules issued during
FY2011), OMB said the following:
The Government Accountability Office (GAO) reported that none of the 17 rules
assessed both anticipated benefits and costs. 231

However, although GAO’s major rule reports for these 17 rules indicated that none of the
independent regulatory agencies provided monetary estimates of both benefits and costs,
the GAO reports frequently indicated that the agencies at least qualitatively “assessed”
both expected benefits and costs. In fact, Table 1-7 of the 2012 draft OMB report
indicates that at least 10 of the 17 rules contained some kind of “Information on Benefits
and Costs,” and 6 rules had monetized cost information.
In Table 1-7 of the 2012 draft report, OMB said that (according to the GAO major rule
reports) 6 of the 17 major rules had no information on costs and benefits at all.232
However, several of these rules actually did contain at least some cost information, and
the relevant GAO major rule reports often so indicated. For example:


OMB interpreted the GAO report on a CPSC rule on “Safety Standards for FullSize Baby Cribs and Non-Full Sized Baby Cribs” (75 FR 81766)233 to state that

229

See, for example, Thomas Hemphill, “It’s Time to Regulate the Regulators,” Real Clear Markets, September 21,
2012, at http://www.realclearmarkets.com/articles/2012/09/21/its_time_to_regulate_the_regulators_99895.html; Arthur
Fraas and Randall Lutter, “On the Economic Analysis of Regulations at Independent Regulatory Commissions,”
Administrative Law Review, volume 63 (Special Edition, 2011), pp. 237-241; Testimony of Sally Katzen before the
Subcommittee on Courts, Commercial and Administrative Law, House Committee on the Judiciary, March 21, 2012,
available at http://judiciary.house.gov/hearings/Hearings%202012/Katzen03212012.pdf; Susan E. Dudley,
“Independent Regulatory Agencies Should be More Accountable,” Regulatory Policy Commentary, September 25,
2012, available at http://regulatorystudies.gwu.edu/images/commentary/dudley_independent_regulatory_agency.pdf;
and CRS Report R41974, Cost-Benefit and Other Analysis Requirements in the Rulemaking Process, by Curtis W.
Copeland, August 30, 2011, available at http://www.fas.org/sgp/crs/misc/R41974.pdf.
230
See http://portman.senate.gov/public/index.cfm/files/serve?File_id=563c60e4-3770-4329-b1aa-ff51752cd750 for a
copy of the letter. It states: “According to a 2011 Office of Management and Budget report, it appears that roughly half
of the major rules developed by independent agencies over a 10-year period provided no information on either costs or
benefits. In 2011, not one of the 17 major rules issued by independent agencies was based on a complete benefit-cost
analysis. The same was true in 2010 (17 major rules, none with a complete benefit- cost analysis) and in 2009 (13 and
0).”
231
See http://www.whitehouse.gov/sites/default/files/omb/oira/draft_2012_cost_benefit_report.pdf, p. 4. This sentence
was removed from the final version of the report issued in April 2013.
232
See http://www.whitehouse.gov/sites/default/files/omb/oira/draft_2012_cost_benefit_report.pdf, pp. 29-31.
233
Section 104(b) of the Consumer Product Safety Improvement Act of 2008 required CPSC to promulgate consumer
product safety standards for durable infant or toddler products. Section 104(b) required that the standards include fullsize and non-full-size baby cribs, and Section 104(c) specified that the crib standards would cover used as well as new
cribs.

65

the rule had no information on benefits or costs. Although the preamble to
the rule did not contain a designated cost-benefit section, it did contain a
substantive five-page discussion of expected costs and effects within the
Regulatory Flexibility Act section. For example, for both full-size and non
full-size cribs, the agency discussed the market; the impact on small
businesses (manufacturers, importers, retailers, and child care centers);
alternatives considered; and other information. The agency estimated that
the total one-time cost to child care centers of replacing all of their full-size
cribs would be approximately $97 million, and the total one-time cost of
replacing non-full-size cribs was estimated to be approximately $290
million.234 Also, the PRA section of GAO’s major rule report stated that CPSC
“estimates that there are approximately 1.3 million children’s apparel and
footwear products that will require an average of 3 hours for the
recordkeeping. Thus, the total hour burden of the recordkeeping associated
with the final rule is 5.4 million hours. Additionally, the total cost of the
recordkeeping associated with the testing and certification rule is
approximately $197 million.”235 In addition, as part of the proposed rule (75
FR 43307), CPSC provided estimates of the expected paperwork burden to
both industry and the government, and monetized those estimates. The
agency referenced those estimates in the final rule.


OMB interpreted the GAO report on a Federal Reserve System rule regarding
“Debit Card Interchange Fees and Routing” (76 FR 43394) to state that the
rule had no information on benefits or costs. However, in a section of the
rule entitled “EFTA 904(a) Economic Analysis,” the agency said the following:
Section 904(a)(2) of the [Electronic Fund Transfer Act] requires the Board to
prepare an economic analysis of the impact of the regulation that considers the
costs and benefits to financial institutions, consumers, and other users of
electronic fund transfers. The analysis must address the extent to which
additional paperwork would be required, the effect upon competition in the
provision of electronic fund transfer services among large and small financial
institutions, and the availability of such services to different classes of
consumers, particularly low income consumers. 236

In the following section entitled “Cost/Benefit Analysis,” the agency said “The
Section-by-Section Analysis above, as well as the Final Regulatory Flexibility
Analysis and Paperwork Reduction Act analysis below, contain a more
detailed discussion of the costs and benefits of various aspects of the
proposal. This discussion is incorporated by reference in this section.” The
section-by-section analysis was more than 50 pages in the Federal Register,
and qualitatively discussed the costs and benefits of different aspects of the
rule. A subsequent section of the preamble discussed “Effects of the Rule on
Various Parties,” including effects on consumers, issuers, merchants, and
234

75 Federal Register 81783, 81784. CPSC officials told the author of this report that because 98% of the child care
centers affected were small entities, the FRFA was essentially a cost-benefit study.
235
See http://gao.gov/products/GAO-12-250R.
236
75 Federal Register 43462.

66

other parties. Also, the RFA section of the GAO major rule report stated that
the Federal Reserve System had concluded that the rule may have a
significant economic effect on a substantial number of small entities, and
discussed steps that the agency would take to address concerns about those
effects.237


OMB interpreted the GAO report on a separate Federal Reserve System rule
on “Debit Card Interchange Fees and Routing” (76 FR 43478) as stating that
the rule had no cost or benefit information. However, both the rule and the
GAO report contained the following quantitative information on paperwork
burden:
The Board estimates that the 380 issuers would take, on average, 160 hours (one
month) to develop and implement policies and train appropriate staff to comply
with the recordkeeping provisions under § 235.4. This one-time annual PRA
burden is estimated to be 60,800 hours. On a continuing basis, the Board
estimates issuers would take, on average, 40 hours (one business week) annually
to review its fraud prevention policies and procedures, updating them as
necessary, and estimates the annual PRA burden to be 15,200 hours. The Board
estimates 380 issuers would take, on average, 5 minutes to comply with the
reporting provision under § 235.4(c) (annual certification), and estimates the
annual reporting burden to be 32 hours. The total annual PRA burden for this
information collection is estimated to be 73,032 hours. 238

OMB interpreted the GAO major rule reports to state that 11 of the 17 major rules had no
monetized cost information. However, the agencies did monetize information on
anticipated paperwork costs in several of these rules, and the GAO reports included this
information, or referenced OMB’s review of the agencies’ paperwork estimates. For
example:


237
238

OMB interpreted the relevant GAO report to provide that an SEC rule on
disclosures for asset-backed securities required by Section 943 of the DoddFrank Act (76 FR 4489) contained no monetized estimates of costs or
benefits. The “Benefit-Cost Analysis” section of the rule contained only
qualitative descriptions of costs and benefits. However, the PRA section
contained detailed estimates of the disclosure rule’s primary direct costs.
For example, the SEC estimated that it would take a total of 230,040 hours
for a securitizer to set up the mechanisms to file the initial Form ABS-15G
disclosures, and estimated that 25% of those hours would require outside
professional assistance, at a cost of about $23 million. Subsequent quarterly
filings were estimated to take 21,600 hours, with outside costs of $2.16
million; and annual confirmations that no repurchases had occurred were
estimated to be 450 hours, and $45,000 in outside costs. Therefore, total
internal burden hours were estimated at $189,068, and total external costs
were estimated to be about $25.2 million. The SEC also estimated that it

See http://gao.gov/products/GAO-11-895R.
76 Federal Register 43486. For the GAO report, see http://gao.gov/products/GAO-11-896R.

67

would take nearly 91,000 hours annually for respondents to provide new
Rule 17g-7 disclosures. The GAO major rule report contained all of this
information.239


Similarly, OMB interpreted the relevant GAO report to indicate that another
SEC rule on issuer review of assets in offerings of asset-backed securities (76
FR 4231) also had no monetized estimates of benefits or costs. Although the
“Benefit-Cost Analysis” section of the preamble contained only qualitative
descriptions, the PRA section discussed paperwork costs, and estimated that
the total increased burden attributable to S-1 and S-3 rules would be
approximately 7,000 hours, with a cost associated with the use of outside
professionals of $8,397,000. The GAO major rule report contained all of this
information.240



OMB interpreted a GAO report regarding a CFTC rule on “Whistleblower
Incentives and Protection” (76 FR 53172) to say that it had no monetized
cost information. However, the preamble to the rule provided estimates of
expected paperwork burden, and certain other costs associated with the
collection of information. (The rule required the Commission to pay eligible
whistleblowers a monetary award for voluntarily providing original
information about violations leading to a successful enforcement action.)
Specifically, CFTC estimated that the total annual burden related to
completing two required forms would be about 340 hours, and that some
filers would incur about $9,000 in attorney fees associated with these filings.
The GAO major rule report said, “the Commission notes that the Paperwork
Reduction Act related costs are included in the overall compliance costs
considered with respect to the final rule,” and that the proposed collections
of information had been submitted to OMB for review.241 Although the GAO
report did not include the above burden estimates, it noted that OMB
approved the paperwork requirements included in the final rule.



OMB interpreted a GAO report regarding a similar SEC rule on
“Whistleblower Incentives and Protections” (76 FR 34299) that it contained
no monetized cost information. Although the “Economic Analysis” section
was qualitative in nature, the Commission estimated in the PRA section of the
rule that Form TCR would have an annual burden of 10,500 hours, and Form
WB-APP would have an annual burden of 258 hours. In addition, the agency
said “that each year whistleblowers will incur the following total amounts of
attorneys' fees for completion of the whistleblower program forms: (i)
$75,000 for the completion of Form TCR; (ii) $24,000 for the completion of
Form WB-APP.”242 GAO’s major rule report reflected these burden hour

239

See http://gao.gov/products/GAO-11-353R.
See http://gao.gov/products/GAO-11-341R.
241
See http://gao.gov/products/GAO-11-934R.
242
76 Federal Register 34355.
240

68

estimates, but did not include the monetized information.243 However, OMB
approved the paperwork requirements in the rule, including the monetized
cost information.


OMB interpreted a GAO report on an SEC rule implementing “Amendments to
the Investment Advisers Act of 1940” (76 FR 42950) to state that the rule
contained no monetized cost information. However, the rule did provide
detailed cost information regarding the rule’s information disclosure
requirement. Specifically, the agency estimated the total annual paperwork
burden at 246,652 hours per year, a reduction of 21,805 from the previously
approved burden. The SEC also said that registered investment advisors
were expected to incur an annual cost burden of $10,056,250, a reduction
from the current approved cost burden of $22,775,400. Although the GAO
major rule report did not include these numbers, it noted that the rule
contained collections of information that had been submitted to OMB for
review.244 Also, OMB approved the paperwork requirements in the rule,
including the monetized cost information.

For other rules, OMB interpreted the GAO major rule reports to say they had no
estimates of benefits or costs, but the rules appeared to be considered “major” only
because they delayed the effective dates of previous major rules. GAO noted this fact in
its major rule reports, and each of the previous major rules contained cost and benefit
information. For example:


OMB interpreted the GAO report on a Federal Reserve System rule regarding
“Electronic Fund Transfers” (75 FR 50683, August 17, 2010) to provide that
it had no information on benefits or costs. This rule delayed the effective
date of certain gift card disclosure provisions in a final rule that had been
published earlier in the year (75 FR 16580, April 1, 2010). The delay was
necessary because Congress changed the underlying statute after the earlier
final rule was published and required the delay in order to permit the sale of
existing card stock through January 31, 2011.245 GAO noted the statutorily
required delay in its major rule report.246 The Federal Reserve System said
the paperwork estimates provided in the earlier rule were unchanged
(although delayed). In that earlier rule, the agency estimated that the
requirements would impose a one-time burden increase of 192,800 hours on
entities regulated by the Federal Reserve, and a continuing annual increase
of 19,280 hours.247 The agency said that entities regulated by other agencies
under the statute could see a one-time increase of more than 2.7 million
burden hours, and a continuing annual increase of 275,000 hours.

243

See http://gao.gov/products/GAO-11-764R.
See http://gao.gov/products/GAO-11-862R.
245
Public Law 111-209, July 27, 2010.
246
See http://gao.gov/products/GAO-11-164R.
247
75 Federal Register 16613.
244

69



OMB interpreted the GAO report on an SEC rule regarding “Regulation SHO”
(75 FR 68702, November 9, 2010) to provide that it had no information on
benefits or costs. However, this rule merely extended by less than four
months the compliance date of a major rule that had been published eight
months earlier (75 FR 11232, March 10, 2010) to “give certain exchanges
additional time to modify their current procedures for conducting singlepriced opening, reopening, and closing transactions for covered securities
that have triggered Rule 201's circuit breaker in a manner that is consistent
with the goals and requirements of Rule 201. Further, the extended
compliance period will give industry participants additional time for
programming and testing for compliance within the requirements of the
rule.”248 GAO noted the reasons for this delay in its major rule report, and
said the extension would delay both the costs and benefits of the original
rule.249 The SEC provided monetized estimates of costs in the March 2010
rule, 250 and said in the November 2010 rule that this extension would delay
both costs and benefits.

Also, OMB said that, according to the relevant GAO report, an NRC major rule had
monetized the costs of the rule, but had not monetized the benefits. However, the rule at
issue was a budgetary transfer rule, not a rule involving traditional regulatory compliance
costs. The NRC is required by law (42 U.S.C. § 2214) to publish the rule each year
revising the fee schedules charged to applicants and licensees so that the agency can
recover 90% of its budget authority for the fiscal year.251 GAO’s major rule report notes
this statutory fee recovery requirement as the reason why the NRC did not prepare a costbenefit analysis for the rule.252 The monetized “cost” information provided in the rule
reflected the amount of fees expected to be collected during the year (about $916
million). According to the NRC, the inspections and other services funded by these fees
“provide a direct benefit to NRC licensees.”253 More generally, the NRC’s mission is
reportedly to “license and regulate the nation’s civilian use of byproduct, source and
special nuclear materials to ensure adequate protection of public health and safety,

248

75 FR 68702.
See http://gao.gov/products/GAO-11-212R.
250
The Commission estimated that the original rule would have an average one-time initial cost of $86,880 per selfregulating organization (SRO) trading center and $68,381 per non-SRO trading center required to establish the written
policies and procedures under this rule. The Commission also estimated an average annual on-going cost of $18,588
per trading center to ensure that the written policies and procedures are up-to-date and remain in compliance. In
addition, the Commission estimated an average annual cost of $102,768 per trading center for on-going monitoring for
and enforcement of trading in compliance with the rule. The Commission also estimated that this rule would have an
average one-time initial cost of $68,381 per broker-dealer establishing the written policies and procedures under the
rule. The Commission estimates an average annual on-going cost of $18,588 per broker-dealer to ensure that written
policies and procedures are up-to-date and remain in compliance. In addition, the Commission estimated an average
annual cost of $102,768 per broker-dealer for on-going monitoring for and enforcement of trading.
251
U.S. Nuclear Regulatory Commission, “Revision of Fee Schedules; Fee Recovery for Fiscal Year 2011,” 76 Federal
Register 36780, June 22, 2011.
252
See http://gao.gov/products/GAO-12-866R.
253
76 Federal Register 36780.
249

70

promote the common defense and security, and protect the environment.”254 Six of the
eight NRC major final rules in Table 1 above involved these fee schedules. In the
portion of the draft OMB report that discusses costs and benefits for Cabinet departments
and independent agencies like EPA, OMB focuses on what it terms “non-budget” rules –
not these kinds of transfer rules.
Therefore, it appears that the information in at least this most recent OMB report
regarding cost and benefit information provided by independent regulatory agencies is
not entirely correct. Rules characterized as containing no information on benefits and
costs sometimes contained such information (albeit primarily qualitative in nature), or did
not contain such information because they were only delaying the compliance dates of
previous rules (which contained cost and benefit information). Rules described as
containing no monetized cost information sometimes contained monetary estimates of
paperwork burden. And one rule described as containing no benefit and cost information
was actually a transfer rule, and reflected an industry’s payment of user fees as required
by law.

a)

Earlier Reports

A quick review of OMB reports from previous years indicated the same types of issues.
The following examples are drawn from the 2011 OMB report255 (covering rules issued
during FY2010):


OMB indicated that an SEC rule on “Facilitating Shareholder Director
Nominations” (75 FR 56668) contained no monetized information on
benefits or costs. Although most of the rule’s effects were described in
qualitative terms, the rule did contain some monetized cost and benefit
information. For example, the agency estimated that the disclosure burden
of Rule 14a-11 on reporting companies and registered investment companies
was 4,113 hours of personnel time and $548,000 for the services of outside
professionals. The disclosure burden to shareholders of Schedule 14N was
estimated at 7,870 hours of shareholder time and more than $1 million for
the services of outside professionals. At another place in the preamble the
agency estimated costs to companies to prepare and submit a notice of intent
to exclude certain proposals at $11,484 hours and more than $1.5 million for
the services of outside professionals. Printing and mailing costs for proxy
materials were estimated to be between $2.6 million and $7.4 million. One
benefit described in the rule was reduced printing and postage costs
(compared to traditional proxy contests), which was estimated at $18,000
for the average nominating or shareholder group.

254

See http://www.nrc.gov/about-nrc/nrc-slides-who-we-are.pdf, p. 8.
Office of Management and Budget, 2011 Report to Congress on the Benefits and Costs of Federal Regulations and
Unfunded Mandates on State, Local, and Tribal Entities, available at
http://www.whitehouse.gov/sites/default/files/omb/inforeg/2011_cb/2011_cba_report.pdf.
255

71



The report indicated that another SEC rule on “Money Market Fund Reform
(75 FR 10060) had no monetized information on benefits or costs. However,
the agency estimated that “each money market fund will incur $24,000 and
all fund complexes will incur $3.9 million annually for the boards of directors
to initially designate and determine the reliability and sufficiency of the
designated NRSROs' credit ratings for use in determining eligibility of
portfolio securities.”256 The agency also estimated that the aggregate cost to
firms preparing a report at $288,510; the total cost to document, review, and
adopt certain policies and procedures at $1,137,000; the total on-time cost
for fund complexes to develop and refine stress test procedures at $16
million; and other stress test-related costs at $24 million.

In other cases, the agencies estimated paperwork burden hours, but just did not monetize
those hours by multiplying by an hourly rate (e.g., $30 per hour). For example, the report
indicated that a Federal Reserve System rule on electronic fund transfers (74 FR 59033)
contained no monetized compliance cost information. The preamble to the rule stated that
the total one-time paperwork burden for respondents would be 38,560 hours, but would
increase to 98,462 hours for Federal Reserve-regulated financial institutions that are
required to comply with Regulation E. The agency also estimated that more than 5
million consumers would each spend as much as 5 minutes reviewing and responding to
an opt-in notice, increasing the total burden by 428,058 hours. Overall, the burden
increase was estimated at 466,618 hours. Although the agency did not monetize this
increase in paperwork burden, it was not required to do so by either the PRA or the
legislation under which the rule was issued.
Overall, the 2011 OMB report stated that GAO “reported that none of the 17 rules
assessed both anticipated benefits and costs.”257 In fact, however, GAO’s reports on
those major rules indicated that although the agencies may not have monetized or even
quantified benefits information in these rules, the agencies often provided at least
qualitative assessments of both benefits and costs.258 In many of the rules, those costs
were quantified, and sometimes were monetized.

b)

CRS Examination of OMB Reports

The Congressional Research Service has also examined OMB’s 2011 report and the draft
2012 report, and reported that the OMB reports and the GAO reports on which they were
based sometimes “differed” in their assessments of the cost-benefit analyses conducted
by the independent regulatory agencies.259 In those cases, CRS said it reviewed the rule
256

75 Federal Register 10010.
OMB 2011 report, p. 4.
258
For example, GAO’s reports for all nine of the major rules issued by the SEC that year indicated that the agency
discussed both costs and benefits in all nine rules.
259
U.S. Congressional Research Service, Independent Regulatory Agencies, Cost-Benefit Analysis, and Presidential
257

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as published in the Federal Register to resolve differences. CRS also reported that the
OMB reports did not include any information on three OCC major rules that the GAO
database indicated had been published. In two of these three rules, CRS said the agency
monetized costs but not benefits. CRS also said that OMB did not provide any
information on a rule issued by the National Labor Relations Board that described both
costs and benefits, but monetized only costs. Finally, CRS noted that although the GAO
major rule reports indicated that CPSC did not conduct a cost-benefit analysis for its two
major rules, the rules themselves indicated that the agency’s regulatory flexibility
analysis included monetization of potential costs to small entities.

B.

Inspectors General Reports on Banking Agencies

Because of concerns regarding the implementation of the Dodd-Frank Act, on May 4,
2011, the 10 Republican Senators on the Senate Committee on Banking, Housing, and
Urban Affairs jointly requested that the offices of the inspectors general (OIGs) for five
independent regulatory agencies in the banking area provide them with information about
the economic analysis requirements applicable to rulemaking in those agencies.260 The
five agencies were the Board of Governors of the Federal Reserve System, the SEC,
CFTC, OCC, and FDIC. The five OIGs provided written responses to the Senators in
June 2011, and those responses are summarized below.
1.

Board of Governors of the Federal Reserve System

As mentioned earlier in this report, the OIG for the Board of Governors of the Federal
Reserve System concluded that the statutes related to the Board’s rulemaking authority,
including the Federal Reserve Act and the Bank Holding Company Act of 1956,
“generally do not require economic analysis as part of the agency’s rulemaking
activities.”261 The OIG noted the applicability of the PRA and the RFA to the Board’s
rulemaking, but said they only require “narrowly tailored evaluations of the rulemaking’s
paperwork burden and effect on small entities, respectively.”262 The OIG said that Board
generally conducts some type of economic analysis, but said the nature of the analysis
“varied according to the applicable rule. Many elements of the Dodd-Frank Act affected
the scope of the economic analysis conducted, including (1) substantive requirements
contained in the statute; (2) statutory references requiring the rulemaking team to
Review of Regulations, by Maeve P. Carey and Michelle D. Christensen, CRS Report R42821, November 16, 2012.
See Table 1, pp. 11-12.
260
See http://crapo.senate.gov/documents/RepublicanBankingCommitteeDoddFrankLetter.pdf for a copy of this letter.
The letter also asked the OIGs to describe internal policies and procedures governing economic analyses of proposed
rules, the degree to which agency staff understand and follow applicable requirements, the qualifications of the staff
who conduct the analyses, and other aspects of those analyses.
261
Office of the Inspector General, Board of Governors of the Federal Reserve System, “Response to a Congressional
Request Regarding the Economic Analysis Associated with Specified Rulemakings,” June 13, 2011, p. 6. The report is
available at http://www.federalreserve.gov/oig/files/Congressional_Response_web.pdf.
262
Ibid, p. 7.

73

consider existing standards, applicable international standards, or prudential
requirements; and (3) a statutorily mandated report on the topic.”263 In particular, the OIG
said certain statutory requirements “may leave limited agency discretion for the
rulemaking, including the economic analysis necessary to support the proposed rule.”264
As requested, the OIG examined the agency’s actions with regard to five proposed rules
under the Dodd-Frank Act.265 The OIG concluded that “each proposed rulemaking
complied with the PRA and the RFA,” and that “the Board conducts the quantitative
economic analysis necessary to satisfy statutory requirements, including ‘consideration’
requirements. On a discretionary basis, the Board also conducts the quantitative
economic analysis it deems necessary to support the rulemaking.”266 Two of the five
rules did not involve quantitative economic analysis. Quantitative methods in the other
rules reportedly included the use of “historical data to perform a decision-tree analysis
linking mortgage loan characteristics to loan performance,” and “an assessment of the
costs and benefits to consumers of 30-year versus 40-year loan terms to determine a
‘standard loan’ definition.”267
2.

Securities and Exchange Commission

The SEC OIG has issued two recent reports examining the agency’s analyses of DoddFrank Act rules – one in June 2011, and one in January 2012.
a)

June 2011 SEC OIG Report

The June 2011 SEC OIG report268 stated that even though Executive Order 12866 and
OMB Circular A-4 do not apply to the Commission, “SEC Chairmen have made a
commitment to Congress that the SEC will conduct cost-benefit or economic analyses in
connection with its rulemaking activities,”269 and said that “the Commission’s current
rulemaking procedures are closely aligned with the requirements” of the executive order

263

Ibid., pp. 11-12.
Ibid., p. 7.
265
The five rules were (1) Credit Risk Retention (Risk Retention), 76 Federal Register 24090 (April 29, 2011); (2)
Risk-Based Capital Standards: Advanced Capital Adequacy Framework-Basel II; Establishment of a Risk-Based
Capital Floor (Risk-Based Capital Floor), 75 Federal Register 82317 (December 30, 2010); (3) Margin and Capital
Requirements for Covered Swap Entities (Margin and Capital Requirements), 76 Federal Register 27564 (May 11,
2011); (4) Regulation Z; Truth in Lending (Ability to Repay), 76 Federal Register 27390 (May 11, 2011); and (5)
Financial Market Utilities, 76 Federal Register 18445 (April 4, 2011).
266
FRS OIG report, op cit., p. 15.
267
Ibid.
268
Office of the Inspector General, U.S. Securities and Exchange Commission, “Report of Review of Economic
Analyses Performed by the Securities and Exchange Commission in Connection with Dodd-Frank Rulemakings,” June
13, 2011, available at http://www.sec-oig.gov/Reports/AuditsInspections/2011/Report_6_13_11.pdf (hereafter referred
to as “OIG/SEC”).
269
In support of this statement, the OIG noted that SEC Office of General Counsel officials quoted former SEC
Chairman Arthur Levitt, who said there was an expectation that the SEC would perform cost-benefit analyses as part of
the rulemaking process. See OIG/SEC, p. 4.
264

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and the circular.270 The OIG also noted that the SEC’s website states that “we take into
account benefits and costs in our rulemakings [and] assess alternative regulatory
approaches,” and that the SEC Chairman stated during a congressional hearing in March
2011 that the SEC does conduct cost-benefit analyses.271 However, the OIG also pointed
out that another SEC Commissioner stated in a May 2011 speech that the “Commission
has not engaged in a cost-benefit analysis of the rulemakings that were essentially
dictated by the law.”272 She reportedly went on to say “By limiting our cost-benefit
analysis to those measures over which the Commission has full discretion, we fail to
consider all the costs and benefits that will result from a particular regulatory action.”273
The SEC OIG report stated that the “potential costs and benefits were set forth in each of
the six proposed rules” that they were asked to examine,274 although the agency was
“rarely able to quantify the economic impact of a proposed rule.”275 The agency did,
however, ask for public comments on costs and benefits, and identified and asked for
comments on regulatory alternatives “[w]here permitted by the Dodd-Frank Act.” SEC
reportedly did not estimate the costs and benefits of alternatives, and did not ask for
public comments on this issue. Overall, though, the OIG concluded that “a systematic
cost-benefit analysis was conducted for each of the six rules reviewed,” and
“incorporated all aspects of the principles of the applicable Executive Orders and the
SEC’s internal compliance handbook.”276
b)

Role of Economists in Rulemaking

In April 2012, the SEC Chairman testified before a House subcommittee that the agency
created the Division of Risk, Strategy, and Financial Innovation (RSFI) in September
2009 “to provide more focus on the economic effects of our rules and to increase the
involvement of economists in the rulewriting process.”277 RSFI is, she said, “directly
involved in the rulemaking process by helping to develop the conceptual framing for, and
assisting in the subsequent writing of, the economic analysis contained in the
Commission’s rulemaking releases.” However, in its June 2011 report, the SEC OIG
270

OIG/SEC, p. 4.
Ibid., p. 5, citing testimony by SEC Chairman Mary Shapiro before the Subcommittee on Financial Services and
General Government, House Committee on Appropriations, March 15, 2011.
272
Ibid., pp. 5-6, citing a speech by Commissioner Kathleen Casey at an SEC open meeting regarding rules for
Nationally Recognized Statistical Rating Organizations held on May 18, 2011.
273
SEC OIG report, op cit., p. 6.
274
The six rules were (1) Credit Risk Retention, 76 Federal Register 24090 (April 29, 2011); (2) Clearing Agency
Standards for Operation and Governance, 76 Federal Register 14472 (March 16, 2011); (3) Registration and
Regulation of Security-Based Swap Execution Facilities, 76 Federal Register 10948 (February 28, 2011); (4) Reporting
by Investment Advisers to Private Funds and Certain Commodity Pool Operators and Commodity Trading Advisors on
Form PF, 76 Federal Register 8068 (February 11, 2011); (5) Registration of Municipal Advisors, 76 Federal Register
824 (January 6, 2011); and (6) Conflict Minerals, 75 Federal Register 80948 (December 23, 2010).
275
Ibid., p. 18.
276
Ibid., p. 42.
277
Testimony of Mary L. Schapiro, Chairman, U.S. Securities and Exchange Commission, before the Subcommittee on
TARP, Financial Services and Bailouts of Public and Private Programs, House Committee on Oversight and
Government Reform, April 17, 2012, pp. 4-5, available at http://oversight.house.gov/wp-content/uploads/2012/04/4-1712-Schapiro-Testimony.pdf., p. 3.
271

75

concluded that the level of involvement of the RSFI “varied considerably from
rulemaking to rulemaking.”

c)

January 2012 SEC OIG Report

In a January 2012 follow-up report on five other Dodd-Frank rules,278 the SEC OIG said
“the extent of quantitative discussion of cost-benefit analyses varied among rulemakings”
and that none of the rules examined “attempted to quantify either benefits or costs other
than information collection costs as required by the Paperwork Reduction Act.”279 The
report also said the SEC “generally focused on discretionary components,” and
(consistent with a then-current September 2010 SEC general counsel memorandum) did
not estimate the costs and benefits of elements in the Dodd-Frank Act for which the
Commission did not have rulemaking discretion.280 Citing the opinion of its expert on
these issues, the OIG said that focusing only on discretionary elements in the statute
“may not be fulfilling the essential purposes of such analyses—providing a full picture of
whether the benefits of a regulatory action are likely to justify its costs and discovering
which regulatory alternatives would be the most cost-effective.” The OIG also concluded
that the SEC “sometimes used multiple baselines in its cost- benefit analyses that were
ambiguous or internally inconsistent,” and rarely addressed the internal costs and benefits
to the Commission itself. Among the OIG’s recommendations were that the SEC’s Office
of the General Counsel reconsider its September 2010 guidance, and that the Commission
use a pre-statute baseline whenever possible. It also recommended that the Commission
generally use a single, consistent baseline in the cost-benefit analyses of rulemakings
related to a particular topic, and consider including internal costs and benefits in the
analyses of its rules. As noted earlier in this report, the SEC’s March 2012 guidance
changed the agency’s position on the analytical baseline, and instructed rulewriting staff
to consider economic effects of both the underlying statute and regulatory discretion.
3.

Federal Deposit Insurance Corporation

278

See http://www.sec-oig.gov/Reports/AuditsInspections/2012/Rpt%20499_FollowUpReviewofDF_CostBenefitAnalyses_508.pdf.
279
Ibid, p. vi.
280
In September 2010, the SEC General Counsel prepared a memorandum indicating that the Commission should not
consider the economic effects of statutorily mandated portions of Dodd-Frank rules. (See Memorandum from David
M. Becker, General Counsel, “Thoughts About Best Practices in Drafting Economic Analysis Sections of Releases for
Dodd-Frank Related Rulemakings,” September 27, 2010.) Specifically, the memorandum stated the following: “Where
the Commission has a degree of discretion, the release should identify the discretion the Commission is exercising, the
choices being made, and the rationale for those choices. To the extent that the Commission is exercising discretion, the
release should discuss the costs and benefits of the choices proposed or adopted, including where possible, a
quantification of the costs and benefits. With respect to those choices made by Congress, the release generally should
cite to the legislative record to support and explain the benefits Congress intended by enacting the provision, but only
as a matter of citation and not as a matter of assertion by the Commission. Where the Commission has no discretion,
the release should say so. Because the Commission is making no policy choices, there are no choices to analyze or
explain.”

76

The June 2011 FDIC OIG report281 stated that, with regard to the three FDIC rules that it
examined:282
Each proposed rule implemented a specific congressional mandate in the Dodd-Frank Act
legislation and, thus, the FDIC’s consideration of alternatives or cost and benefit factors
was limited by those statutory requirements. We found that for each proposed rule, FDIC
staff: worked jointly with other financial regulatory agencies to ensure a coordinated
rulemaking effort; performed quantitative analysis of relevant data; considered alternative
approaches to the extent allowed by the legislation; requested comment from the public
on numerous facets of the rules; and, where applicable, included information about the
analysis that was conducted and assumptions that were used in the text of the proposed
rule.283

For example, in an April 2011 rule on “credit risk retention,” the OIG report stated that
FDIC and the other agencies issuing the rule “performed quantitative analysis of data to
understand the breadth and scope of securitizations that could be affected by the proposed
rules as well as each technical aspect of the rulemaking.”284 Some of these analyses were
done because of specific requirements in the authorizing legislation. For example,
Section 941(e)(4)(B) of the Dodd-Frank Act required federal banking agencies to
consider underwriting and product features that historical loan performance data indicate
result in a lower risk of default. The OIG report indicated that the agencies satisfied this
requirement by examining relevant data from three different sources.
4.

Commodity Futures Trading Commission

The June 2011 CFTC OIG report285 was actually the second of two reports that the OIG
issued in 2011 regarding the cost-benefit analyses performed by the agency with regard to
Dodd-Frank Act rules. The first was issued April 15, 2011, in response to a request from
the chairman of the House Committee on Agriculture and the chairman of one of its
subcommittees. In that report,286 the CFTC OIG focused on four rules,287 and discussed
281

Office of the Inspector General, Federal Deposit Insurance Corporation, “Evaluation of the FDIC’s Economic
Analysis of Three Rulemakings to Implement Provisions of the Dodd-Frank Act,” Report No. EVAL-11-003, June
2011, p. 1 of the Executive Summary. The report is available at http://www.fdicoig.gov/reports11%5C11-003EV.pdf,
and is hereafter referred to as “OIG/FDIC.”
282
The three rules were (1) Credit Risk Retention, 76 Federal Register 24090 (April 29, 2011); (2) Margin and Capital
Requirements for Covered Swap Entities, 76 Federal Register 27564 (May 11, 2011); and (3) Risk-Based Capital
Standards: Advanced Capital Adequacy Framework – Basel II; Establishment of a Risk-Based Capital Floor, 75
Federal Register 82317 (December 30, 2010).
283
OIG/FDIC, pp. 2-3 of the Executive Summary.
284
OIG/FDIC, p. 11.
285
Office of the Inspector General, U.S. Commodity Futures Trading Commission, “A Review of Cost-Benefit
Analyses Performed by the Commodity Futures Trading Commission in Connection with Rulemakings Undertaken
Pursuant to the Dodd-Frank Act,” June 13, 2011, available at http://www.cftc.gov/ucm/groups/public/@aboutcftc/
documents/file/oig_investigation_061311.pdf, hereafter referred to as “CFTC OIG June 2011 report.”
286
“An Investigation Regarding the Cost-Benefit Analyses Performed by the Commodity Futures Trading Commission
in Connection with Rulemakings Undertaken Pursuant to the Dodd-Frank Act,” available at
http://www.cftc.gov/ucm/groups/public/@aboutcftc/documents/file/oig_investigationreport.pdf, hereafter referred to as
“CFTC OIG report, April 2011.”
287
The four rules were (1) Protection of Cleared Swaps, Customer Contracts and Collateral; Conforming Amendments
to the Commodity Broker Bankruptcy Provisions, April 27, 2011, 76 Federal Register 33818 (June 9, 2011); (2) Risk
Management Requirements for Derivatives Clearing Organizations, 76 Federal Register 3698 (Jan 20, 2011); (3)

77

such issues as the difficulty in quantifying industry costs, confusion surrounding PRA
analyses, the “need to avoid addressing costs and benefits for mandatory aspects of
Dodd-Frank,”288 and the failure to calculate the agency’s internal costs in analyzing costs
and benefits.289 The report ultimately concluded that Commission staff viewed the
requirement in Section 15(a) as “a legal issue more than an economic one, and the views
of the Office of the General Counsel therefore trumped those expressed by the Office of
the Chief Economist” – a development that the OIG did not believe “enhanced the
economic analysis” of the four rules.290 The OIG concluded that “a more robust
examination of costs and benefits should only enhance the Agency’s ability to defend its
cost-benefit analyses,” and (quoting a witness at a March 30 congressional hearing) that
“economic analysis is more than about satisfying procedural requirements for regulatory
rulemaking.”
The June 2011 CFTC OIG report examined four other rules, and contained findings that
were similar to the earlier report. The OIG said that three of the four rules were issued
prior to March 2011, and said the agency “generally adopted a ‘one size fits all’ approach
to section 15(a) compliance without giving significant regard to the deliberations
addressing idiosyncratic cost and benefit issues that were shaping each rule, and often
addressed in the preamble.” The OIG said it was “pleased with the cost-benefit
discussion” in the fourth rule, which reportedly was influenced by the April 2011 OIG
report. The only deficiencies were described as “minor,” and involved clarification of
PRA costs and a lack of quantified costs to the agency to implement the regulation.291
5.

Comptroller of the Currency

The June 2011 OCC OIG report292 stated that the agency “does follow statutory,
regulatory, and its own internal requirements relevant to rulemaking and related
economic analysis.”293 The OIG also said “OCC used quantitative and qualitative
methodologies; considered alternatives and the impact of the alternatives; sought public
input; and that OCC rulemaking was transparent and the results were generally
reproducible.”294 The agency reportedly used quantitative methodologies to estimate
costs, but the OIG noted that “the benefits cited for the proposed rules were generally
Swap Trading Relationship Documentation Requirements for Swap Dealers and Major Swap Participants, 76 Federal
Register 6715 (February 8, 2011); and (4) Core Principles and Other Requirements for Swap Execution Facilities, 76
Federal Register 1214 (January 7, 2011).
288
According to the OIG, CFTC staff “uniformly stressed a desire to refrain from expressing mandatory rules in terms
of costs and benefits,” and said the analysis of costs associated with provisions required by Congress “would not be
appropriate.” See also CFTC OIG report, June 2011, p. 24.
289
CFTC OIG report, April 2011, pp. 14-15.
290
Ibid., p. 22.
291
CFTC OIG report, June 2011, p. 28.
292
Office of the Inspector General, Department of the Treasury, “Dodd-Frank Act: Congressional Request for
Information Regarding Economic Analysis by OCC,” June 13, 2011, available at http://www.treasury.gov/about/
organizational-structure/ig/Documents/OIG-CA-11-006.pdf.
293
Ibid., p. 6.
294
Ibid., p. 8.

78

qualitative statements.”295 Also, two of the three specific rules examined were not
considered “significant” regulatory actions, and “therefore did not require a full
cost/benefit analysis” or “an evaluation of alternatives.”296 Finally, the OIG pointed out
that in the one rule that was subject to economic analysis, the agency’s paperwork burden
estimates were different in the PRA and the economic impact analysis sections.

C.

GAO Reports on Analyses for Dodd-Frank Act Rules

In November 2011, GAO issued a report describing the analyses that had been done with
regard to 10 final rules issued pursuant to the Dodd-Frank Act that had taken effect by
July 21, 2011, and in which the agencies had rulemaking discretion.297 GAO noted that
the independent regulatory agencies issuing the rules were covered by certain
crosscutting analytical requirements (e.g., the PRA and the RFA), but also said “none of
the regulators are required to conduct benefit-cost analysis.”298 For example, GAO said
Section 15(a) of the Commodity Exchange Act (7 U.S.C. § 19(a)) requires CFTC to
“consider” the costs and benefits of its actions before issuing a rulemaking under the act,
and requires that costs and benefits be evaluated in light of (1) the protection of market
participants and the public; (2) the efficiency, competitiveness, and financial integrity of
futures markets; (3) price discovery; (4) sound risk management practices; and (5) other
public interest considerations. However, GAO also said Section 15(a) “does not require
CFTC to quantify the costs and benefits of a new regulation or determine whether the
benefits outweigh its costs.”299
In all of the 10 Dodd-Frank Act rules that were examined (3 major rules and 7 non-major
rules),300 GAO concluded that the agencies had (1) identified the problem that the
regulation was intended to address, and in six cases, assessed the problem’s significance;
(2) examined reasonable alternatives, often requesting public comments on specific
issues and examining alternative approaches in the context of responding to the
comments; and (3) considered different compliance dates for enforcement to begin. In 7
of the 10 rules, GAO said the agencies assessed the benefits and costs of the alternative
295

Ibid.
The three rules examined were 1) Credit Risk Retention, 76 FR 24090 (April 29, 2011); (2) Risk-Based Capital
Standards: Advanced Capital Adequacy Framework – Basel II, Establishment of a Risk-Based Capital Floor, 75 FR
82317 (Dec. 30, 2010); and (3) Margin and Capital Requirements for Covered Swap Entities, 76 FR 27564 (May 11,
2011).
297
U.S. Government Accountability Office, Dodd-Frank Act Regulations: Implementation Could Benefit from
Additional Analysis and Coordination, GAO-12-151, November 10, 2011. Section 1573(a) of the Department of
Defense and Full-Year Continuing Appropriations Act of 2011 amended the Dodd-Frank Act and requires GAO to
prepare an annual study of financial services regulations. GAO initially examined 32 rules, but eliminated 21 of the
rules because the Dodd-Frank Act gave the agencies little or no discretion as to whether or how to implement them.
One other rule was eliminated because the issuing agency (SEC) said it readopted an existing rule without change.
298
Ibid., Highlights page.
299
Ibid., p. 10.
300
GAO staff told the author of this report that although OMB Circular A-4 technically does not apply to non-major
rules, they used the circular to represent “best practices” for all 10 of the rules because the agencies indicated that they
followed the “spirit” of the circular in all of their rules. The seven non-major rules were all coded as “substantive” in
the Unified Agenda.
296

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selected. The analyses generally included descriptions of the reasons for choosing among
reasonable alternatives, descriptions of the benefits and costs that could not be monetized,
and cross-references to data or studies on which the analysis was based.
On the other hand, GAO said the agencies did not monetize the expected costs in six of
the seven rules, and did not monetize any of the expected benefits. GAO said that the
“monetization of costs largely was limited to paperwork-related costs and excluded other
direct and indirect costs, and monetization of benefits was non-existent.”301 In five of the
seven rules, the agencies reportedly did not provide quantitative estimates of benefits or
costs, and did not explain why costs and benefits could not be quantified or monetized.
Although GAO recognized that estimating the future costs and benefits of financial rules
can be difficult, GAO ultimately concluded that these analyses could have been done
better if they had more closely adhered to the guidance provided in OMB Circular A-4.
Therefore, to “strengthen the rigor and transparency of their regulatory analyses,” GAO
recommended that the federal financial regulators “take steps to better ensure that the
specific practices in OMB’s regulatory analysis guidance are more fully incorporated into
their rulemaking policies and consistently applied.”302 In their written comments on the
report, the independent regulatory agencies generally agreed with GAO’s findings and
conclusions, and “some agreed with the recommendations, while others neither agreed
nor disagreed but stated actions they had taken or planned to take regarding the
recommendations.”303
1.

GAO’s December 2012 Report

On December 18, 2012, GAO issued a report examining the regulatory analyses for 54
substantive Dodd-Frank Act rules (including 19 major rules) that were issued and took
effect between July 2011 and July 2012.304 GAO said the agencies “conducted the
regulatory analyses required by federal statutes” for all of the rules, and “generally
considered, but typically did not quantify or monetize, the benefits and costs of these
rules.”305 Specifically, 49 of the 54 substantive rules included discussions of potential
benefits or costs. The cost discussions were primarily qualitative except for the PRA
analyses, which generally included quantitative data such as hours or dollars spent to
comply with paperwork requirements. Benefits were described as “largely qualitative
and framed in terms of the objectives of the rules.”306 Although the agencies said they
attempt to follow OMB’s guidance in “principle or spirit,” GAO concluded that they “did
not consistently follow key elements of the guidance in their regulatory analyses.” For
example, although some agencies identified the benefits and costs of their chosen
regulatory approach in proposed rules, they did not compare that approach to the benefits
301

Ibid., p. 37.
Ibid., p. 39.
303
Ibid., p. 40.
304
U.S. Government Accountability Office, Dodd-Frank Act: Agencies’ Efforts to Analyze and Coordinate Their Rules,
GAO-13-101, December 18, 2012.
305
Ibid., p. 10.
306
Ibid., p. 14.
302

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and costs of alternatives. By not more closely following OMB’s guidance, GAO said the
agencies “continue to miss an opportunity to improve their analyses.”307 GAO did not
make recommendations in this report, but reiterated the recommendations in its
November 2011 report that (among other things) federal financial regulators more fully
incorporate OMB’s guidance into their rulemaking policies.

D.

Committee on Capital Markets Regulation Letter

In a March 2012 letter to the Chairmen and Ranking Members of the Senate and House
banking committees, the Committee on Capital Markets Regulation (CCMR)308
expressed its “deep concern about the inadequacy of cost-benefit analysis” in proposed
and final rulemakings under the Dodd-Frank Act.309 Specifically, CCMR said it reviewed
the cost-benefit analysis provisions in 192 proposed and final rules, orders, and notices
issued between July 2010 and September 2011 by a variety of agencies (most of which
were independent regulatory agencies).310 CCMR reported that 57 of the rules contained
no cost-benefit analysis, and another 85 rules contained only a non-quantitative analysis.
The remaining 50 rules reportedly contained quantitative cost-benefit information, but
most limited the analysis to a review of the costs of paperwork and other matters, and did
not contain any analysis of the expected broader economic impact of the rules.
The agencies differed in the number and nature of their analytical actions. The SEC
accounted for 54 of the 192 rules (not including joint rules with other agencies). Of
these, 4 contained no cost-benefit analysis, 26 contained non-quantitative analysis, and 24
contained quantitative analysis. CCMR said that the SEC’s analyses were usually more
thorough than those prepared by other agencies, and more recent rules had better analyses
than earlier ones.
CCMR noted that some agencies said that certain rules were not expected to have a
significant economic impact (and therefore were not subject to certain analytical
requirements), or contained costs that were imposed entirely by the Dodd-Frank Act
itself. Nevertheless, CCMR encouraged the agencies to explain how they reached those
307

Ibid., Highlights page.
CCMR describes itself on its website as “an independent and nonpartisan 501(c)(3) research organization dedicated
to improving the regulation of U.S. capital markets. Thirty-three leaders from the investor community, business,
finance, law, accounting and academia comprise the Committee’s membership. The Committee co-Chairs are Glenn
Hubbard, Dean of Columbia Business School, and John L. Thornton, Chairman of the Brookings Institution.” See
http://capmktsreg.org/.
309
CCMR letter to the Chairman and Ranking Member of the Senate Committee on Banking, and the Chairman and
Ranking Member of the House Committee on Financial Services, “Lack of Cost-Benefit Analysis in Dodd-Frank
Rulemaking,” March 7, 2012 (hereafter, “CCMR letter”). To view a copy of this letter, see
http://capmktsreg.org/pdfs/2012.03.07_CBA_letter.pdf.
310
The agencies were the Securities and Exchange Commission (which accounted for 54 rules), Commodity Futures
Trading Commission, Federal Reserve, Federal Deposit Insurance Corporation, Financial Stability Oversight Council,
Consumer Financial Protection Bureau, Office of Financial Research, Internal Revenue Service, Federal Housing
Finance Authority, Office of Comptroller of the Currency, Office of Thrift Supervision, Department of Housing and
Urban Development, Department of Treasury, Department of Energy, Department of Labor, National Credit Union
Administration, Federal Trade Commission, and Farm Credit Administration.
308

81

conclusions. The Committee concluded that it would be an “unfortunate outcome” if
many of the Dodd-Frank rules are ultimately invalidated because of inadequate costbenefit analysis, and recommended that the agencies “improve their processes and
conduct more thorough cost-benefit analysis.”311 CCMR recognized that doing so might
require additional agency resources (e.g., to obtain data, hire economists, or engage thirdparty analysts), and said “we fully support the necessary funding.”312 The organization
also said that, in calling for better cost-benefit analysis, it was not suggesting that DoddFrank Act rulemaking be delayed; “To the contrary, we firmly believe that certain
changes mandated by Dodd-Frank are crucial to the functioning of the financial markets
and should thus be put into effect as soon as possible.”313
1.

Analysis of CCMR Findings

Examination of the rules in the CCMR report that were characterized as not containing a
cost-benefit analysis revealed that many of them were administrative in nature, appeared
to have little apparent impact on non-federal entities, or actually contained a discussion of
regulatory costs and benefits. For example, rules described as not having a cost-benefit
analysis included the following:


A July 21, 2011, CFPB rule (76 FR 43569) that simply listed the rules and orders
that would be enforced by the agency (and that was specifically required by
Section 1063(i) of the Dodd-Frank Act).



An August 18, 2010, CFTC proposed rule (75 FR 50950) withdrawing an
earlier proposed rule on position limits for futures and option contracts that
had been issued prior to the enactment of the Dodd-Frank Act, and for which
the statutory authority had been changed.314



A September 20, 2011, CFTC rule (76 FR 58176) that contained a lengthy
section entitled “consideration of costs and benefits.”



An August 13, 2010, FDIC rule (75 FR 49363) permanently raising the
agency’s standard maximum deposit insurance limit to $250,000. The
agency had no discretion in setting the limit because it was expressly
required in Section 335 of the Dodd-Frank Act, and the agency stated in the
rule that “there would not be any compliance costs with displaying the
official sign, because it would be provided by the FDIC free of charge.”

311

CCMR letter, p. 4.
Ibid., p. 5.
313
Ibid.
314
The CCMR database showed this action on a different date (October 18, 2010, not August 18, 2010), and did not
indicate that the rule was being withdrawn.
312

82



A September 2, 2010, National Credit Union Administration (NCUA) rule (75
FR 53841) that made permanent the standard maximum share insurance
amount of $250,000. The agency said it was simply amending its share
insurance and official sign regulations to conform to this statutory change in
the Dodd-Frank Act. NCUA said it would provide insured credit unions with
signs at no cost, and had made a downloadable graphic available on its web
site.



An August 5, 2011, FDIC rule (76 FR 47652) that simply transferred and
redesignated certain rules relating to state savings associations that had
been transferred to the agency from the Office of Thrift Supervision by the
Dodd-Frank Act. The agency said it made “only technical changes to existing
OTS regulations (such as nomenclature or address changes).”



A July 7, 2011, SEC rule (76 FR 39769) delegating authority to the Director of
the Division of Enforcement to disclose information relating to
whistleblowers, and was considered by the agency to be a matter that
“relates solely to agency organization, procedure, or practice and does not
relate to a substantive rule.”



A December 23, 2010, Federal Reserve System rule (75 FR 80675) that the
agency said “corrects certain cross-references and typographical errors in
the regulation, staff commentary to the regulation, and the supplementary
information “ of an earlier rule (75 FR 66554, which the CCMR study also
identified as having no cost-benefit analysis, but which had lengthy RFA and
PRA discussions, including quantified estimates of paperwork burden).



A July 22, 2011, “notice of intent” issued by the Federal Reserve System (76
FR 43953) that simply indicated that the agency intended to continue to
enforce certain OTS regulations after those functions had been transferred to
the agency by the Dodd-Frank Act. The agency later issued a rule formally
transferring those functions to the Board (76 FR 56508), which the CCMR
study also said did not have a cost-benefit analysis.



A September 26, 2011, Federal Reserve System rule (76 FR 59237) making it
clear that certain motor vehicle dealers were exempt from certain reporting
requirements until the effective date of forthcoming rules. (CFPB had issued
a letter in April 2011 providing a similar assurance to those businesses
covered by its regulations.)



A September 2, 2011, Federal Reserve System proposed rule (76 FR 54717)
that would “permit nonbank companies that own at least one registered
securities broker or dealer, and that are required by a foreign regulator or
provision of foreign law to be subject to comprehensive consolidated
supervision, to register with the Board and subject themselves to supervision

83

by the Board.” Section 618 of the Dodd-Frank Act required the agency to
issue the rule. The agency estimated that it would take each of the five
companies expected to register with the Board eight hours to fill out the
registration paperwork, for a total burden of 40 hours.


A July 26, 2011, Federal Trade Commission (FTC) rule (76 FR 44462)
rescinding its “Statements of General Policy or Interpretations Under the Fair
Credit Reporting Act” (FCRA) because the Dodd-Frank Act transferred
authority to issue interpretive guidance under FCRA to CFPB. FTC also stated
that such statements of policy were not rules and did not have the force and
effect of law.



A March 28, 2011, Financial Stability Oversight Council (FSOC) proposed rule
(76 FR 17038) that “would implement the requirements of the [Freedom of
Information Act] by setting forth procedures for requesting access to FSOC
records.”



A January 28, 2011, SEC rule (76 FR 2805) in which the agency delegated
authority to the Chief Accountant with respect to proposed rule changes of
the Public Company Accounting Oversight Board. The agency said the
changes “relate solely to agency organization, procedures, or practices, and
do not relate to a substantive rule.”



A June 22, 2011, SEC “exemptive order” (76 FR 36287) granting “temporary
exemptive relief and other temporary relief from compliance with certain
provisions of the Securities Exchange Act of 1934 concerning security-based
swaps.”

SEC officials told the author of this report that they too had looked at the SEC rules
included in the CCMR study, and concluded that some of those rules did not require a
cost-benefit analysis. The author of the CCMR study told the author of this report that he
still believed each of the above rules was substantive and should have had a cost-benefit
analysis. However, he emphasized that was his position, and not that of the
Committee.315

E.

Resources for the Future Conference

On April 7, 2011, Resources for the Future (RFF) held a conference in Washington, D.C.,
exploring whether greater use of economic analysis could improve the quality of
regulations issued by independent regulatory agencies.316 As part of that conference, the
315

E-mail exchange with John Gulliver, Research Fellow, Committee on Capital Markets Regulation, September 16,
2012.
316
For a summary of this conference, see
http://www.rff.org/Documents/Events/Workshops%20and%20Conferences/110407_Regulation_Summary.pdf. RFF

84

organizers and visiting scholars at RFF – Arthur Fraas and Randall Lutter, both former
OIRA staff members – presented the results of their own examination of independent
regulatory agencies’ rules.317 After conducting what they termed a “quick and limited
survey” of certain agencies’ economic analyses, Fraas and Lutter concluded that the
analyses conducted by “independent regulatory commissions” (IRCs) (other than the
NRC) was “generally the minimum required by statute.”
IRC final rules generally address the requirements of the Regulatory Flexibility Act and
the Paperwork Reduction Act. In many instances the IRCs appear to be issuing major
regulations without reporting any quantitative information on benefits and costs—apart
from the paperwork burden—that would routinely be expected from executive branch
agencies covered by Executive Order 12866. Instead, they offer only a qualitative
discussion of the benefits and costs. The IRCs present this discussion without any formal
review of alternatives. Their analyses generally do not estimate possible unintended
effects and do not consider behavioral change. And perhaps most importantly, with the
exception of the estimates of paperwork burden prepared to meet the requirements of the
Paperwork Reduction Act, they generally do not analyze economic effects in a manner
intended to meet any identifiable standards for such analysis. 318

Fraas and Lutter said the RFA analysis for some rules met “only the most generous
definition of ‘analysis,’” and said the agencies often did not monetize estimates of
paperwork burden. They also said that certain issues were hardly addressed at all,
particularly in rules issued by the Board of Governors of the Federal Reserve. Finally,
they suggested several areas in which they believed economic analysis would “bring an
important perspective to IRC regulatory policy decisions,” such as (1) in health and
safety rules issued by the NRC319 and the CPSC; (2) transition issues associated with the
adoption of more stringent rules; (3) rules regulating prices and production, or limiting
the entry of new firms; (4) rules mandating information disclosure; and (5) the promotion
of accountability and transparency to Congress and the public.
One of the presenters at the RFF conference was William P. Albrecht, Professor of
Economics, Emeritus, at the University of Iowa, and a former acting CFTC chairman.
Professor Albrecht examined several of the Dodd-Frank Act rules that the agency had
issued, and concluded that none of the rules contained “any real [cost-benefit analysis].”
However, he went on to say the following:
Nor would one expect it to. Section 15(a) of the Commodity Exchange Act (CEA), which
sets forth the duties of the agency, requires the CFTC to consider the costs and benefits of
its proposed regulations, but it does not require quantification of them. [7 U.S.C. 19(a)]
It also does not require the agency to determine whether the benefits exceed the costs nor
whether the proposed rules are the most cost effective ways of achieving their goals. All
describes itself as “a nonprofit and nonpartisan organization that conducts independent research – rooted primarily in
economics and other social sciences – on environmental, energy, natural resource and environmental health issues.”
317
Arthur Fraas and Randall Lutter, “On the Economic Analysis of Regulations at Independent Regulatory
Commissions,” RFF DP 11-16, April 2011, available at http://www.rff.org/RFF/Documents/RFF-DP-11-16_final.pdf.
This article was later published in the Administrative Law Review (volume 63, Special Edition, 2011, pp. 213- 241),
available at http://www.hks.harvard.edu/m-rcbg/rpp/Fraas_Lutter_Ec_Anal_of_Regulations.pdf.
318
Ibid., p. 2-3.
319
As noted earlier in this report, the NRC is required by its organic authority, the AEA, to ensure adequate protection
regardless of cost. Once beyond the adequate protection standard, the NRC can consider costs.

85

the Act requires is that the CFTC consider the costs and benefits of its actions and to
evaluate the costs and benefits in five broad areas of market and public concern: (1)
protection of market participants and the public; (2) efficiency, competitiveness, financial
integrity of financial markets; (3) price discovery; (4) sound risk management practices;
and (5) other public considerations.
This rather limited requirement was added to the Commodity Exchange Act in 2000. To
the best of my knowledge, it has not had a significant impact on a single CFTC rule or
regulation. Nor has it had a significant impact on any of the proposed Dodd-Frank
rules.320

F.

Mercatus Center Working Paper

An October 2012 working paper prepared by Hester Peirce for the Mercatus Center at
George Mason University described, in its words, “just how little high-quality economic
analysis the federal financial regulators charged with implementing Dodd-Frank and
regulating the financial markets are doing. Although each regulator has a unique
approach to economic analysis, all of their approaches fall short of the standard to which
executive agencies are held. More fundamentally, the federal financial regulators are
depriving themselves of analysis essential to the proper exercise of their rulemaking
functions.”321 The report reviewed previous studies by the inspectors general, GAO, and
others, and offered its own conclusions regarding particular agencies. For example, the
report stated:
In fulfilling its statutory mandate thus far, the CFPB has not chosen to embrace
regulatory analysis as a way of better assessing the need for, alternatives to, and
economic implications of its rules. Instead, the CFPB’s approach has exhibited
deficiencies that impair its usefulness as a rulemaking tool. For example, the CFPB has
relied on speculative benefits; underestimated compliance costs; minimized
noncompliance costs, including the costs to consumers of reduced access to financial
products and services; and deferred quantitative analysis. 322

The report also criticized other financial agencies’ analytical practices. For example,
after quoting one of NCUA’s board members as saying that it would be costly to conduct
a regulatory analysis for every rule, the author said that that the agency “would be wellserved by conducting prepromulgation regulatory analysis to better understand the need
for, alternatives to, and implications of its rules before they take effect.”323 The report
also said “FDIC’s current efforts to rethink its approach to regulatory analysis are much
needed to match FDIC practice with its stated belief that ‘cost-benefit analysis [is] an
important component of the rule-making process’ and its stated claim that it ‘seeks to
320

William P. Albrecht, Cost-Benefit Analysis and the Commodity Futures Trading Commission, April 7, 2011, pp. 23, available at http://www.rff.org/RFF/Documents/RFF-DP-11-24.pdf.
321
Hester Peirce, “Economic Analysis by Federal Financial Regulators,” Mercatus Working Paper No. 12-31, October
2012, available at http://mercatus.org/sites/default/files/FinancialRegulators_Peirce_v1-0_1.pdf.
322
Ibid., p. 19. In support of these statements, the author discussed several particular CFPB rules issued in July and
August 2012. See footnotes 86 through 89 of the referenced report.
323
Ibid., p. 22.

86

undertake such analysis with rigor and transparency.’”324 After noting a 1979 policy
statement by the Federal Reserve Board, and a finding by the agency’s inspector general
that the amount of analysis is dictated by specific statutory mandates and other factors,
the Mercatus report described this as a “somewhat haphazard approach to economic
analysis [that] is not consistent with the policy statement’s goal of producing a
comprehensive regulatory analysis with certain minimum elements for every rule.”325
The report concluded by saying:
Although some regulators are making an effort to conduct economic analysis, federal
financial regulators generally have shied away from conducting thorough regulatory
analysis designed to identify the problem necessitating regulation and the best solution
(regulatory or otherwise) to achieve the desired result. Nor do they generally make formal
economic analyses and the assumptions underlying them available for public review and
comment. As a consequence, the massive Dodd-Frank rulemaking effort and other
substantial initiatives in financial regulation are being undertaken without the benefit of
the type of regulatory analysis that is a mandatory feature of rulemakings by executive
agencies.326

VI. Analyses in Major Rules Published During
FY2012 and Other Recent Rules
According to the GAO rules database,327 independent regulatory agencies published a
total of 22 final rules in the Federal Register during FY2012 (October 1, 2011, through
September 30, 2012) that were considered “major” under the Congressional Review Act.
CFTC published 10 of the 22 major rules during this period, the SEC published 4 major
rules, and CFTC and the SEC jointly published 3 other major rules. Together, therefore,
the two agencies accounted for 17 of the 22 major rules published by independent
regulatory agencies during the fiscal year. CFPB published two major rules during the
period, and the NRC and CPSC each published one major rule. The Office of the
Comptroller of the Currency, the Federal Reserve System, and FDIC jointly published
one major rule. Each of these 22 major rules is discussed in Appendix A of this report,
which provides identifying information about each rule (date published, effective date,
regulation identifier number, and Federal Register citation); a brief description of the
nature of the rule; cost-benefit information; PRA information; and RFA information
drawn from GAO major rule reports and the preambles to the rules.
This review indicated what several previous studies had reported – that most of the
agencies’ discussions of expected regulatory benefits and (to a lesser degree) costs were
qualitative in nature. As Table 5 below shows, in 19 of the 22 rules, expected regulatory
benefits were only discussed in qualitative terms. Only one rule provided some
324

Ibid., p. 24.
Ibid., p. 26.
326
Ibid., p. 36.
327
Available at http://gao.gov/legal/congressact/fedrule.html.
325

87

quantitative benefits information, and the remaining two rules (including one NRC
budget transfer rule) did not contain any discussion of expected benefits. In 11 of the 22
rules, cost information was discussed only in qualitative terms (3 rules) or primarily in
qualitative terms (8 rules). However, viewing the same rules from a different perspective,
18 of the 22 rules contained at least some quantitative or monetized information about
expected costs. In most of these rules, the quantitative and monetized information was
primarily confined to paperwork costs, but in at least four rules it appeared that most of
the direct regulatory costs were expected to be paperwork related. In five other rules, the
agencies quantified and monetized other types of costs.
Table 5: Summary of the 22 Major Final Rules Published by Independent Regulatory
Agencies During FY2012
Agency

Title of Rule

Benefits

Costs

Other

CFTC
(76 FR 69334,
11/08/2011)

Derivatives Clearing
Organization General
Provisions and Core
Principles

Qualitative (e.g.,
protection of market
participants)

Primarily qualitative,
but paperwork
monetized

Evaluated eight
parts of rule in
terms of five
Section 15(a)
factors

CPSC
(76 FR 69482,
11/08/2011)

Testing and Labeling
Pertaining to Product
Certification

Declined to prepare
cost-benefit analysis
(CBA) because of
CPSIA deadlines

Declined, but
paperwork burden
quantified and
monetized

Lengthy RFA
section included
need, cost of
testing, and
alternatives

CFTC and SEC
(76 FR 71128,
11/16/2011)

Reporting by
Investment Advisers to
Private Funds (Form
PF)

Qualitative (e.g.,
improve risk
monitoring and help
commissions protect
markets)

Primarily PRArelated; quantified
and monetized
paperwork burden

SEC’s RFA analysis
quantified and
monetized costs to
small entities; CFTC
did Section 15(a)
analysis

CFTC
(76 FR 71626,
11/18/2011)

Position Limits for
Futures and Swaps

Qualitative
(transparency to
prevent manipulative
behavior)

Primarily qualitative,
but quantified and
monetized
paperwork costs

Evaluated three
parts of rule in
terms of five
Section 15(a)
factors

CFTC
(76 FR 78776,
12/19/2011)

Investment of
Customer Funds and
Funds Held in Account
for Foreign Futures

Qualitative (greater
security and
enhanced stability)

Qualitative (requires
enhanced
monitoring
resources)

Evaluated rule in
terms of five
Section 15(a)
factors

CFPB
(76 FR 79308,
12/21/2011)

Fair Credit Reporting
(Regulation V)

Qualitative (updating
Regulation V)

Primarily PRArelated; monetized
paperwork costs

Rule is mainly
codification of
transferred
authority

SEC
(76 FR 81793,
12/29/2011)

Net Worth Standard
for Accredited
Investors

Qualitative (reduced
transaction costs,
reduced incentives
for manipulation)

Qualitative (some
increased costs)

Did RFA analysis
describing effects on
small entities

CFTC
(77 FR 1182,
01/09/2012)

Real-Time Public
Reporting of Swap
Transaction Data

Qualitative
(improved market
quality, risk
management, and
oversight)

Primarily PRArelated. Not in
preamble, but
quantified and
monetized in PRA

Also discussed the
five Section 15(a)
factors.

88

Agency

Title of Rule

Benefits

Costs

Other

database
CFTC
(77 FR 2136,
01/13/2012)

Swap Data
Recordkeeping and
Reporting
Requirements

Qualitative (ensures
fairness of swaps
markets)

Primarily PRArelated. Not in
preamble, but
quantified and
monetized in PRA
database

Also discussed the
five Section 15(a)
factors.

CFPB
(77 FR 6194)
02/07/2012

Electronic Fund
Transfers (Regulation
E)

Qualitative (more
reliable information)

Primarily qualitative
but quantified
paperwork burden

Did RFA analysis
describing effects on
small entities

CFTC
(77 FR 6336,
02/07/2012)

Protection of Cleared
Swaps Customer
Contracts and
Collateral

Qualitative (greater
assurance of safety)

Primarily qualitative;
paperwork costs
were quantified and
monetized

Also discussed the
five Section 15(a)
factors

CFTC
(77 FR 9734,
02/17/2012)

Business Conduct
Standards for Swap
Dealers and Major
Swap Participants with
Counterparties

Qualitative
(enhanced
transparency and
reduced information
asymmetries)

Qualitative (e.g.,
costly disclosures
and possible delays)

CBA was part of
extensive discussion
of five Section 15(a)
factors for eight
sections of the rule

SEC
(77 FR 10358,
02/22/2012)

Investment Adviser
Performance
Compensation

Primarily qualitative,
but some
quantitative

Primarily qualitative,
but some
quantitative

Only two
comments on CBA,
and did not provide
data

CFTC
(77 FR 20128,
04/03/2012)

Swap Dealer and Major
Swap Participant
Recordkeeping,
Reporting, and Duties
Rules

Qualitative
(facilitates
recognition and
management of risk,
disincentive to risky
conduct)

Primarily qualitative
(lack of data);
however, PRA costs
quantified and
monetized

Also discussed
Section 15(a)
factors. CBA
section 27 pages
long

CFTC
(77 FR 21278,
04/09/2012)

Customer Clearing
Documentation,
Timing of Acceptance
for Clearing, and
Clearing Member Risk
Management

Qualitative (faster
processing of swaps,
reduced latency
period, improved
access to swaps
markets)

Primarily qualitative
(incremental costs
“may be material”);
some paperwork
monetized

Considered Section
15(a) factors for
three groups of
rules; comprised
CBA analysis

CFTC and SEC
(77 FR 30596,
05/23/2012)

Further Definition of
“Swap Dealer,”
“Security-Based Swap
Dealer,” “Major Swap
Participant,”….

Qualitative
(“significant”
benefits)

Quantified and
monetized some
costs, but no data
on other costs

Commissions said
benefits not
possible to quantify
due to lack of data,
but CFTC did
Section 15(a)
analysis

NRC
(77 FR 35809,
06/15/2012)

Revisions of Fee
Schedules; Fee
Recovery for Fiscal
Year 2012

Unstated, although
implicit

Quantified and
monetized fees
assessed on nuclear
industry

Budget transfer
rule, so “costs” are
actually fees; also
did RFA analysis

CFTC
(77 FR 36612,

Core Principles and
Other Requirements
for Designated

Qualitative (greater
specificity and
transparency)

Primarily qualitative
(resources, staff,
automated systems),

Costs/benefits
discussed in terms
of five Section 15(a)

89

Agency

Title of Rule

06/19/2012)

Contract Markets

SEC
(77 FR 45722,
08/01/2012)

Consolidated Audit
Trail

CFTC and SEC
(77 FR 48208,
08/13/2012)

Benefits

Costs

Other

but paperwork
quantified and
monetized

factors organized by
rule’s 23 core
principles

Qualitative
(promotes efficiency,
competition, and
capital formation)

Quantified and
monetized (general
and paperwork
costs); some analysis
deferred

SEC said some costs
and benefits depend
on actions by
regulated entities

Further Definition of
“Swap,” “SecurityBased Swap,” and
“Security-Based Swap
Agreement;” …

Qualitative
(improved oversight)

Primarily qualitative,
but some monetized
paperwork costs
and provided wide
ranges of other
costs

CFTC had 19 pages
of CBA, and more
on Section 15(a)
factors; SEC had 17
pages of economics

OCC, FRS, and
FDIC
(77 FR 53060,
08/30/2012)

Risk-Based Capital
Guidelines: Market
Risk

Qualitative (more
sensitive to market
risk, improved
transparency)

OCC quantified and
monetized capital
costs and quantified
paperwork burden

UMRA analysis by
OCC included CBA

SEC
(77 FR 56365,
09/12/2012)

Disclosure of
Payments by Resource
Extraction Issuers

Qualitative
(transparency,
improved investment
decision making)

Monetized initial and
ongoing costs of
compliance, and
paperwork costs.

Also said would
have burden on
competition; did
RFA analysis

Source: Analysis of GAO major rule reports and major rule preambles. See Appendix for more details on
these rules and their analyses.

In addition to (or as part of) cost-benefit studies of the rules, the GAO reports and rule
preambles frequently indicated that the agencies also performed other types of economic
analysis. For example:


In all 13 rules published by CFTC (either alone or with the SEC), the agency
discussed the economic effects of the rule in terms of the five Section 15(a)
factors in the Commodity Exchange Act (i.e., protection of market
participants and the public; efficiency, competitiveness, and financial
integrity of futures markets; price discovery; sound risk management
practices; and other public interest considerations).



Six of the rules contained a regulatory flexibility analysis under the RFA,
describing the expected effects of the rule on small businesses and other
small entities. Even when the agencies certified that the rule would not have
a “significant economic impact on a substantial number of small entities,” the
agencies sometimes did an analysis to reach that conclusion.



In 15 of the 22 rules, the agencies did an analysis of paperwork under the
PRA, quantifying and often monetizing expected burden and costs.328 In

328

In five rules, the agencies said there were no collections of information covered by the PRA. In one rule, the agency
said the paperwork burden was covered by another information collection. In another rule, the agency said it was
simply transferring the burden from one agency to another, and the actual burden on regulated entities was unchanged.

90

several of these rules that focused on reporting and recordkeeping
requirements, the agencies indicated that virtually all of the expected direct
regulatory costs were caused by the collections of information.

A.

Extent of Analysis and Explanations Within Particular
Agencies

The following sections discuss the analyses that particular agencies did in particular
major rules published during FY2012. In some cases, other substantive rules are also
discussed (e.g., when an agency did not issue any major rules during FY2012).
1.

Commodity Futures Trading Commission

As Table 5 above indicates, in all 10 major rules that CFTC published by itself during
FY2012, the agency provided only qualitative descriptions of expected benefits. In four
of the rules, costs were also only discussed in qualitative terms, and in three other rules,
the discussions of costs were primarily qualitative. In three other rules, the costs of the
rules appeared to be primarily paperwork-related, and the agency quantified and
monetized those costs. The CFTC Chief Economist told the author of this report that the
agency’s framework for considering costs and benefits has evolved over time, and that its
discussions of costs and benefits are now more lengthy and sophisticated than in the past.
He also said the state of analysis should continue to improve as they gain more
experience and get comments from the public.
a)

Difficulty in Quantifying Costs and Benefits

CFTC frequently indicated in the preambles to the FY2012 major rules that it was
difficult to quantify or monetize expected costs or benefits. Problems cited included lack
of data, the fact that the public did not provide data in its comments on the rules, and the
variable way that certain rules could be implemented. For example:


329

In a November 8, 2011, rule on “Derivatives Clearing Organization General
Provisions and Core Principles,” CFTC said “because of the range of
circumstances of different [derivatives clearing organizations, or DCOs], it is
not feasible to estimate or quantify the costs of the safeguards imposed by
the Commission's financial resource rules.” 329 In another part of the same
rule, the agency said “the possible future circumstances leading to and
potential resulting consequences of a future default are too speculative and
uncertain to quantify or estimate.” Also, “Given the staffing and operational
differences among DCOs, the Commission is unable to accurately estimate or

76 Federal Register 69414.

91

quantify the additional costs DCOs may incur to comply with the new
financial resource rules.”


In a November 18, 2011, rule on “Position Limits for Futures and Swaps,”
CFTC said “Quantifying the consequences or costs of market participation or
trading strategies would necessitate having access to and understanding of
an entity's business model, operating model, and hedging strategies,
including an evaluation of the potential alternative hedging or business
strategies that would be adopted if such limits were imposed. Because the
economic consequences to any particular firm will vary depending on that
firm's business model and strategy, the Commission believes it is impractical
to develop any type of generic or representative calculation of these
economic consequences.”330 CFTC also said “public comment letters provided
little quantitative data regarding the costs and benefits associated with the
Proposed Rules.”



In a February 17, 2012, rule on “Business Conduct Standards for Swap
Dealers and Major Swap Participants with Counterparties,” CFTC said ““With
respect to quantification of the costs and benefits of the final business
conduct standards rules, the Commission notes that, because the Dodd-Frank
Act establishes a new regulatory regime for the swaps market, there is little
or no reliable quantitative data upon which the Commission can evaluate, in
verifiable numeric terms, the economic effects of the final business conduct
standards rules. No commenters presented the Commission with verifiable
data pertinent to any of the proposed rules, stated whether such verifiable
data exists, or explained how such cost data or any empirical analysis of that
data would inform the choice of implementation pursuant to a specific
provision of the Dodd-Frank Act or whether such data and resultant
empirical analysis is ascertainable with a degree of certainty that could
inform Commission deliberations.”331



In the April 3, 2012, rule on “Swap Dealer and Major Swap Participant
Recordkeeping, Reporting, and Duties,” CFTC said the “Commission received
approximately 51 comments addressing the cost and benefit considerations
of the proposed rules, but few commenters presented to the Commission
quantitative data pertinent to any of the proposed rulemakings, and no

330

76 Federal Register 71665.
77 Federal Register 9806. In a footnote, CFTC said “For example, with respect to potential costs associated with
restrictions on information flows from dealers to their counterparties and increased reliance by counterparties on
dealers, there is no clear means of quantification because of the difficulty in designing metrics for these potential costs.
In addition, because there is no historical period in which similar rules were in effect, there remains the formidable (and
costly) challenge of comparing the current environment to the post-rule environment. This challenge is compounded by
the likelihood that the effect of the rule will differ across dealers and across counterparties. Quantification of the
potential delays in swap execution and higher associated fees faces similar challenges, including lack of available data
over which to measure the effect (if any) of such delays. The combination of these factors makes it impractical to
determine reliable estimates of these types of costs. Moreover, no commenters provided verifiable estimates. As a
consequence, the discussion of these potential costs is undertaken in qualitative terms.”
331

92

commenter stated whether such data is ascertainable with a degree of
certainty that could inform Commission deliberations. After conducting a
review of applicable academic literature, the Commission is not aware of any
research reports or studies that are directly relevant to its considerations of
costs and benefits of these final rules.”332


In an April 9, 2012, rule on “Customer Clearing Documentation” and other
issues, CFTC said the costs and benefits were either “indirect, highly
variable, or both and therefore are not subject to reliable quantification at
this time.”333 Later in the rule, the Commission said “The incremental costs
attributable to these rules cannot be quantified, due to the flexibility the
rules provide regulated entities to meet the applicable standards and to the
differing technology already in use by those entities.”334



In a June 19, 2012, rule on “Core Principles and Other Requirements for
Designated Contract Markets,” CFTC determined that in most instances,
quantification of costs was “not reasonably feasible” because costs depend on
the size and structure of designated contract markets (DCMs), which vary
markedly, or because quantification required information or data in the
possession of the DCMs to which the Commission does not have access, and
which was not provided in response to the notice of proposed rulemaking.335

CFTC officials told the author of this report that Title VII of the Dodd-Frank Act has
required the agency to regulate in markets that have never been previously regulated, and
are therefore “dark” in terms of existing knowledge and experience. They said until these
markets are regulated, the Commission has no authority to require data from individuals
and organizations in these markets. The officials said the Commission has repeatedly
asked these entities to voluntarily provide the agency with cost information, but they have
been unwilling to do so because the information about their businesses could put them at
a competitive disadvantage. Some organizations have orally provided cost information in
meetings and roundtable discussions, but “flat out refuse” to provide written materials.
CFTC officials said another complicating factor is the expedited time frames in which
these rules have to be issued per Dodd-Frank. The agency doesn’t have the option to not
issue the rules or miss the timeframes in order to generate more data for the analysis.
Nothing in the statute says the agency can wait until it can get quantitative data. The
officials also said the clearance process in the Paperwork Reduction Act has sometimes
constrained their ability to collect cost information.
In addition to these reasons, the agency also contends that it is not statutorily required to
quantify regulatory costs or benefits. In September 2010, the CFTC Office of General
332

77 Federal Register 20167.
77 Federal Register 21292.
334
77 Federal Register 21298.
335
77 Federal Register 36666.
333

93

Counsel and Office of Chief Economist said that the agency’s authorizing legislation
“does not require the Commission to quantify the costs and benefits of a rule or to
determine whether the benefits of the order outweigh its costs; rather, it requires that the
Commission ‘consider’ the costs and benefits of its actions.”336 CFTC officials said
much the same thing in an interview with the author of this report (with one saying “we
do exactly what we are told to do”), and pointed out that GAO took a similar position in
its November 2011 report. In that report, GAO said that Section 15(a) of the Commodity
Exchange Act “does not require CFTC to quantify the costs and benefits of a new
regulation or determine whether the benefits outweigh its costs; rather, it requires
CFTC to consider the costs and benefits of its actions.”337

b)

Baseline for Analysis

CFTC frequently indicated in the major rules that its analyses (particularly those related
to Section 15(a) of the Commodity Exchange Act) were focused on the elements of the
rule that were within the agency’s discretion, not those provisions that were mandated by
Congress. In other words, the agency appeared to be using the post-statutory baseline in
its analyses. For example:


In the above-mentioned November 8, 2011, rule on “Derivatives Clearing
Organization General Provisions and Core Principles,” the agency said “As
these requirements are imposed by the Dodd-Frank Act, any associated costs
and benefits are the result of statutory directives, as previously determined
by the Congress, that govern DCO activities independent of the Commission's
regulations. By its terms, CEA Section 15(a) requires the Commission to
consider and evaluate the prospective costs and benefits of regulations and
orders of the Commission prior to their issuance; it does not require the
Commission to evaluate the costs and benefits of the actions or mandates of
the Congress.”338



In a February 7, 2012, rule on “Protection of Cleared Swaps Customer
Contracts and Collateral,” CFTC said “To the extent that these new rules
reflect the statutory requirements of the Dodd-Frank Act, they will not create
costs and benefits beyond those mandated by Congress in passing the
legislation. However, the rules may generate costs and benefits attributable
to the Commission's determinations regarding implementation of the DoddFrank Act’s statutory requirements. The costs and benefits of the
Commission’s determinations are considered in light of five factors set forth
in CEA section 15(a).”339

336

OIG/CFTC, p. 3.
GAO-12-151, p. 10.
338
77 Federal Register 69410.
339
77 Federal Register 6362.
337

94



In the above-mentioned April 3, 2012, rule on “Swap Dealer and Major Swap
Participant Recordkeeping, Reporting, and Duties,” CFTC said almost exactly
the same thing: “To the extent that these new regulations reflect the
statutory requirements of the Dodd-Frank Act, they will not create costs and
benefits beyond those resulting from Congress’s statutory mandates in the
Dodd-Frank Act. However, to the extent that the new regulations reflect the
Commission’s own determinations regarding implementation of the DoddFrank Act's provisions, such Commission determinations may result in other
costs and benefits. It is these other costs and benefits resulting from the
Commission’s own determinations pursuant to and in accordance with the
Dodd-Frank Act that the Commission considers with respect to the section
15(a) factors.” CFTC also noted that the costs and benefits of the rule “in
large part, are attributable to the baseline statutory mandate.”340



In the above-mentioned April 9, 2012, rule, under the heading “Consideration
of Costs and Benefits,” the agency again said: “To the extent that these final
regulations repeat the statutory requirements of the Dodd-Frank Act, they
will not create costs and benefits beyond those resulting from Congress's
statutory mandates in the Dodd-Frank Act. However, to the extent that the
regulations reflect the Commission's own determinations regarding
implementation of the Dodd-Frank Act's provisions, such Commission
determinations may result in other costs and benefits. It is these other costs
and benefits resulting from the Commission’s determinations pursuant to
and in accordance with the Dodd-Frank Act that the Commission considers
with respect to the Section 15(a) factors.”341



In the above-mentioned June 19, 2012, rule, the Commission noted that the
first section of each “core principle” was a codification of the statutory
language, and said it “did not consider the costs and benefits of these rules
because they do not reflect the exercise of discretion by the Commission.
Where the Commission includes additional regulations for a core principle,
the Commission considered the costs and benefits.”342



In an August 13, 2012, rule defining such terms as “swap” and “securitybased swap,” CFTC said it “considered the “costs and benefits resulting from
its discretionary determinations with respect to the Section 15(a) factors.”343
However, the agency also said that it “also considers, qualitatively, costs and
benefits relative to the status quo, that is, the pre-Dodd Frank Act regulatory
regime, for historical context to help inform the reader.”

340

77 Federal Register 20168.
77 Federal Register 21291.
342
77 Federal Register 36666.
343
77 Federal Register 48307.
341

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CFTC officials told the author of this report that Section 15(a) of the Commodity
Exchange Act (7 U.S.C. § 19(a)) requires the Commission to consider the costs and
benefits “of the action of the Commission.” Given this language, they said use of the
post-statutory baseline seems appropriate, because use of a pre-statutory analytical
baseline would go beyond the “action of the Commission,” and would involve “second
guessing” the actions of Congress when the statute was enacted.
2.

Securities and Exchange Commission

As Table 5 above indicates, the SEC did some type of analysis for all seven of the major
rules that it published (either alone or with the CFTC) during FY2012. The analyses for
the two rules published in the first half of the fiscal year were primarily qualitative in
nature, but rules published later in the year appeared to be more likely to have
quantitative and monetized cost information. Of the four major rules that the SEC issued
by itself, the descriptions of the benefits were only qualitative in three of the four rules,
and were primarily qualitative in the remaining rule. Costs were only qualitatively
discussed in one rule, were primarily qualitative in one rule, and were quantified and
monetized in the other two rules.
SEC officials told the author of this report that all substantive rules are analyzed to some
extent, although the extent of analysis varies with the importance of the rule on a “sliding
scale” (i.e., not a major/non-major break of rules in two “buckets”). They said the first
step is to do an overall qualitative cost-benefit analysis, with a subsequent quantification
of those elements for which there are data. SEC officials said costs and benefits are
quantified only to the extent it is feasible to do so. They said the SEC looks for public
data, asks the public for data, and tries to generate data on significant components of
rules. If costs or benefits cannot be quantified, they said the agency tries to be
transparent about why that is the case (e.g., reasons for the lack of data).

a)

Difficulty in Quantifying Costs and Benefits

In several of the rules, the SEC indicated that it was difficult to provide quantified
estimates of regulatory costs or benefits. For example:


344

In a December 29, 2011, rule on “Net Worth Standard for Accredited
Investors,” the SEC said “there are no available data tracking Regulation D
investment by household, so we cannot develop quantitative estimates of the
economic impact of eliminating from the pool of accredited investors the
households that no longer qualify based on the new net worth standard, or of
providing exemptive or other relief from the new standard, which would
keep such households in the accredited investor pool.”344

76 Federal Register 81803.

96



In a May 23, 2012, rule defining such terms as “swap dealer” and “securitybased swap dealer,” the SEC and CFTC determined that the programmatic
benefits would be significant, though they “will not be entirely measurable,
as it is not possible to quantify the benefits of mitigating or avoiding a future
financial crisis, or the benefits of avoiding an unsuitable security-based swap
transaction.”345



In a September 12, 2012, rule on “Disclosure of Payments by Resource
Extraction Issuers,” the SEC described the benefits of the agency’s
discretionary decisions in qualitative terms “because reliable, empirical
evidence regarding the effects is not readily available to the Commission.”346

SEC officials told the author of this report that a variety of factors can make it difficult to
quantify certain regulatory costs and/or benefits:

345
346



When the agency is asked to regulate a type of activity that has not been
previously regulated (or has not even previously existed), and there are no
data or prior experiences regarding how regulated parties will react to a new
requirement.



When regulated entities with relevant proprietary data do not want to
provide the SEC with that information for competitive reasons, or otherwise
want to keep the information nonpublic.



When the agency has to get OMB clearance to collect information covered by
the PRA (i.e., collections of information from 10 or more people).



When a rule gives regulated entities flexibility in how they can comply, and
that flexibility can make it difficult to quantify how many entities will
respond one way versus another. (The officials said they try to use
compliance experience in similar types of rules, but that experience may not
be a perfectly analogous situation.)



When some benefits are inherently difficult to quantify/monetize (e.g.,
reductions in systemic risk), particularly when the agency is trying to
determine the effect of one rule in relation to all of the rules being issued by
the SEC and other federal agencies. (They said the agency uses academic
work on reductions of systemic risk where relevant, but few of those studies
address the impact of particular rules.)



When rules involve information disclosure (either by the agency or regulated
parties), with the theory being that the disclosed information will make

77 Federal Register 30724.
77 Federal Register 56403.

97

certain risky behaviors less likely. They said that in this and other contexts it
is difficult to know with any degree of certainty how behaviors will actually
change, particularly in reaction to a single rule.
3.

OCC, FDIC, and the Federal Reserve System

As noted earlier in this report, the Office of the Inspector General for the Board of
Governors of the Federal Reserve System said in June 2011 that the statutes related to the
Board’s rulemaking authority “generally do not require economic analysis as part of the
agency’s rulemaking activities.”347 The OIG reports for OCC and FDIC also did not
mention any agency-specific statutory requirements for economic analysis.
OCC, FDIC, and the Federal Reserve System published only one joint major final rule
during FY2012 (the August 30, 2012, rule on “Risk-Based Capital Guidelines”). OCC
conducted an analysis under the Unfunded Mandates Reform Act that included an
assessment of the rule’s costs and benefits.348 The agency estimated that the cost of the
additional capital to the 14 national banks affected by the rule would be approximately
$178 million per year. The overall estimate of the cost of the final market risk rule was
$179.5 million, which reflected capital costs and compliance costs associated with
implementing the alternative measures of creditworthiness. Benefits were described in
qualitative terms, including increased transparency, lowered risk of catastrophic losses,
and reduced “procyclicality” of market risk capital. All three agencies also provided
quantitative estimates of paperwork burden (84,452 total hours) in the notice of proposed
rulemaking,349 which were confirmed in the final rule.
4.

Consumer Financial Protection Bureau

As noted earlier in this report, Section 1022(b)(2)(A) of the Dodd-Frank Act requires
CFPB to “consider” (among other things) the potential benefits and costs of its rules to
consumers and covered persons. CFPB Director Richard Cordray has been quoted as
saying that the agency undertakes “extensive quantitative and qualitative research” before
proposing rules, and takes costs and benefits into account before issuing its regulations.
“If the burdens outweigh the benefits,” he said, “its not the kind of rule we should go
forward with.”350 Responding to criticism that some of the agency’s rules are very long,
347

Office of the Inspector General, Board of Governors of the Federal Reserve System, “Response to a Congressional
Request Regarding the Economic Analysis Associated with Specified Rulemakings,” June 13, 2011, p. 6. The report is
available at http://www.federalreserve.gov/oig/files/Congressional_Response_web.pdf.
348
As noted earlier in this report, Section 315 of the Dodd-Frank Act amended the PRA (44 U.S.C. § 3502(5)) to
designate OCC as an independent regulatory agency. UMRA defines an “agency” as not including independent
regulatory agencies. However, an OCC official told the author of this report that it was unclear whether the agency was
considered an independent regulatory agency for purposes of UMRA, since the statute does not define the term
“independent regulatory agency” and does not reference the PRA definition. Therefore, he said OCC decided to err on
the side of caution and conduct an UMRA analysis.
349
76 Federal Register 1889, January 11, 2011.
350
Mike Ferullo, “Cordray Vows Consumer Bureau Will Limit Costs, Burdens of Dodd-Frank Regulations,” BNA

98

he said “You can’t have it both ways. You can’t complain…that the bureau doesn’t
engage in sufficient, extensive cost-benefit analysis and then complain that we devote a
lot of pages in our proposal to the same cost-benefit analysis that you told us you
want.”351
CFPB published two major rules during FY2012. The December 21, 2011, interim final
rule on “Fair Credit Reporting (Regulation V”352 was issued because of a transfer of
authorities from other agencies, and did not impose any new substantive requirements on
those subject to existing regulations. Nevertheless, the agency prepared an analysis of
costs and benefits, describing the benefits in qualitative terms (e.g., saying that
recodifying existing rules would facilitate compliance with the Fair Credit Reporting
Act). Costs were expected to derive from a one-time revision in covered entities’
disclosures, and estimated that these changes would impose total costs of more than $98
million across 214,000 firms. The agency said these costs might be overstated because
multiple firms may use the same software vendors, and because affected firms are given
more than one year to make the changes (and may make the changes during routine
updates).
In the February 7, 2012, final rule on “Electronic Fund Transfers (Regulation E)”353
CFPB said it did an analysis pursuant to the requirement in Section 1022(b)(2)(A) that
the agency “consider” the potential costs, benefits, and impacts of its regulations.
Because of what the agency described as a limited amount of publicly available data,
CFPB said the analysis “generally proves a qualitative discussion of the benefits, costs,
and impacts of the final rule.”354 Benefits were described in terms of consumers having
reliable information on the costs of transfers, facilitating competitive shopping, and
making consumers less susceptible to unfair and deceptive practices. Additional costs
were expected as a result of updating systems, revising contracts, and changed protocols.
As part of its PRA analysis, the Bureau estimated the total annual burden to comply with
the rule at nearly 7.7 million hours, including about 3.4 million hours in one-time burden
and nearly 4.3 million in ongoing burden.
CFPB also published several rules during FY2012 that were considered
“significant/substantive” in the GAO rules database. In one such rule published in July
2012, the agency included a section entitled “Potential Benefits and Costs to Consumers
and Covered Persons,” noting that the analysis “considers the benefits, costs, and impacts
of the key provisions of the rule against a pre-statutory baseline; that is, the analysis
evaluates the benefits, costs, and impacts of the relevant statutory provisions and the

Daily Report for Executives, July 25, 2012, p. EE-8. These comments were made during a July 24, 2012, hearing on
“Credit Crunch: Is the CFPB Restricting Consumer Access to Credit?” before the Subcommittee on TARP, Financial
Services and Bailouts of Public and Private Programs, House Committee on Oversight and Government Reform, Serial
No. 112-166, p. 20, available at http://oversight.house.gov/wp-content/uploads/2012/10/2012-07-24-Ser.-No.-112-166SC-TARP-Credit-Crunch-is-the-CFPB-Restricting-Consumer-Access-to-Credit.pdf.
351
Ibid.
352
76 Federal Register 79308.
353
77 Federal Register 6194.
354
77 Federal Register 6272.

99

regulation combined.”355 However, the agency also said “limited data are publicly
available with which to quantify the potential benefits, costs, and impacts of the rule.”
Therefore, the agency said, benefits, costs, and other effects were primarily discussed in
qualitative terms. Expected benefits from increased compliance included more accurate
information, and therefore better decisions. Costs were described as companies possibly
needing to hire or train personnel, and/or invest in new systems. The agency did try to
estimate bank examination costs, which ranged from less than $12,000 in small firms to
about $68,000 in larger firms. The total cost of responding to supervision by the six
largest firms was estimated to be about $364,000 annually (0.008% of aggregate annual
receipts).
The next most recent “significant/substantive” CFPB rule, issued in December 2011,
republished a regulation reflecting the transfer of rulemaking authority to the agency
from the Board of Governors of the Federal Reserve System, but said the rule “does not
impose any new substantive obligations on persons subject to the existing Regulation E,
previously published by the Board.”356 CFPB noted the requirement for cost-benefit
analysis in Section 1022(b)(2)(A) of the Dodd-Frank Act, but also said the “manner and
extent to which these provisions apply to interim final rules and to benefits, costs, and
impacts that are compelled by statutory changes rather than discretionary Bureau action is
unclear.”357 Several other CFPB “significant/substantive” rules issued during the fiscal
year were also republications of rules reflecting transfers of rulemaking authority to the
agency from other agencies by the Dodd-Frank Act.358
5.

Consumer Product Safety Commission

In the one major rule that CPSC issued during FY2012 (“Testing and Labeling Pertaining
to Product Certification,” November 8, 2011), the agency did not estimate benefits or
costs in general, but did quantify and monetize expected paperwork burden and assessed
the potential impact on small entities. The rule contained a lengthy RFA section
describing the need for the rule, the cost of testing, and alternatives that the agency
considered to reduce the impact of the rule on small entities. In response to a comment
asking CPSC to prepare a full cost-benefit analysis, the agency stated in the preamble that
the rule was being promulgated under the Administrative Procedure Act and Section 3 of
the Consumer Product Safety Improvement Act (CPSIA), and that “neither authority
requires us to conduct a cost-benefit analysis. Moreover, by allowing in CPSIA expedited
rulemaking, Congress made it clear that it did not want the Commission engaging in any
unnecessary delay in promulgating this rule.”359 The agency then said, “While, in
355

Consumer Financial Protection Bureau, “Defining Larger Participants of the Consumer Reporting Market,” 77
Federal Register 42874, July 20, 2012, at 42892.
356
Consumer Financial Protection Bureau, “Electronic Fund Transfers (Regulation E),” 76 Federal Register 81020,
December 27, 2011.
357
Ibid., at 81022.
358
See, for example, Consumer Financial Protection Bureau, “Truth in Lending (Regulation Z),” 76 Federal Register
79768, December 22, 2011.
359
76 Federal Register 69484.

100

recognition of Congress’s view as reflected in CPSIA, we decline to conduct a costbenefit analysis for the final rule, we have changed the final rule to address some of the
economic burden on manufacturers ” and listed four examples of such changes. 360
CPSC officials told the author of this report that the statutes under which the agency has
most frequently issued rules (the Consumer Product Safety Act, the Federal Hazardous
Substances Act, and the Flammable Fabrics Act) all require the agency to prepare a costbenefit analysis for most product-related rules, and the agency did so in most rules prior
to 2008. For example, in a 2006 rule addressing mattress flammability, GAO’s major
rule report stated:
The Commission performed a cost-benefit analysis of the final rule. Using a discount rate
of 3 percent and an expected 10-year mattress life, aggregate benefits of the final rule are
expected to be $1,024 million to $1,307 million. The midpoint estimate for aggregate
benefits is $1,166 million. The corresponding expected aggregate resource costs of the
rule are $175 to $511 million. The midpoint estimate for aggregate costs is $343 million.
The aggregate net benefits equal $514 to $1,132 million. The midpoint estimate for
aggregate net benefits is $823 million. 361

However, CPSC officials said the enactment of CPSIA in 2008 altered the agency’s
standard practice in several ways.


Among other things, the statute required the agency to issue the November
2011 rule mentioned previously in an expedited manner. The officials said
the tight deadlines in the statute made it virtually impossible to do a full costbenefit analysis and make the findings that they would normally make,
because they had little or no existing information on the number of makers of
children’s products, or what products they produce. Benefits would have
been particularly hard to estimate with any precision, they said, because it
would have required the agency to know what certification procedures (if
any) the companies were already following and how many injuries would
have been prevented because of the third party testing requirements.



To address these data problems, they said the agency would have ideally had
the time and resources to go out and survey the companies and gather these
data. However, they said getting OMB clearance to conduct such a
complicated survey under the PRA would have taken at least a year, and even
longer to conduct the survey. Even at that point, they said the companies
might not have even been able to answer the survey questions, because the
respondents would have to know what the requirements were going to be
before they were in place.



The officials also said that this rule represented a departure from the scope
of normal agency rulemaking; they said CPSC typically regulates a particular

360

Ibid.
The rule examined was “Standard for the Flammability (Open Flame) of Mattress Sets,” published on March 15,
2006, at 71 Federal Register 13472. To view the GAO report, see http://gao.gov/products/GAO-06-621R#mt=e-report.
361

101

product, whereas this rule had to do with certifications for all children’s
products.
Finally, they pointed out that the rule implemented a specific statutory requirement, and
the agency had little discretion in deciding how the rule should be written. However,
they pointed out that the agency did an RFA analysis and a PRA analysis of the rule
which, when taken together, described many of the rule’s expected costs.
In general, the officials said the agency does whatever the law requires; doing anything
more than that, they said, would be a policy choice by the agency. For example, when
the law requires the agency to do a cost-benefit analysis (e.g., pursuant to CPSA, FFA, or
FHSA), they said the agency does the analysis.362 In those analyses, they said all of the
different types of findings are addressed together in one briefing package for the
Commission’s review. They also include the work of others in the agency (e.g.,
epidemiologists and engineers). Each of those divisions would also send a memorandum
to the Commission, along with the economics memorandum.
However, if the law under which the rule is issued says they do not have to do an
analysis, and particularly if it has tight deadlines for issuance of the rule (as has been the
case with regard to the CPSIA rules the agency has been issuing lately), then they said the
agency might not do a cost-benefit type analysis. They noted that the agency always does
an RFA analysis, and does a PRA analysis for any rule that contains a collection of
information. For some rules (e.g., those that primarily affect small entities, or that
primarily involve paperwork costs), they said those analyses do provide a useful measure
of the cost impacts of the rule on small businesses.
CPSC officials said other factors affecting the extent to which the agency prepares
regulatory analyses include staffing (the agency has a total of eight economists and five
attorneys who handle rulemaking issues) and the nature of the rules being issued. They
pointed out that the November 2011 testing and certification rule was statutorily required,
but how firms would actually react to it was unclear because CPSC was regulating in new
space (a third party testing and certification requirement for a wide range of products,
which was a new arena for the agency and businesses).
6.

Federal Communications Commission

FCC did not publish any major final rules during FY2012, and had not done so since
calendar year 2008, when the agency published five such rules. In each of those rules,
GAO’s major rule reports indicated that the agency “is not required to prepare, and did
not prepare, a cost-benefit analysis for the final rule.”363 As noted earlier in this report,
aside from the RFA and the PRA, there are currently no statutory provisions that
362

An example they cited was the recent proposed rule on magnets (77 FR 53781, September 4, 2012), which was
issued under the CPSA, not the CPSIA.
363
See, for example, GAO’s report on “Commercial Mobile Alert System,” August 14, 2008, 73 Federal Register
47550, available at http://gao.gov/products/GAO-08-1116R#mt=e-report.

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specifically require the FCC to prepare a cost-benefit analysis or other type of economic
analysis. Therefore, until the last year or so, they said the agency seldom prepared such
analyses (a frequency that was described by one FCC official as “hit or miss”).
However, FCC officials said the agency’s willingness to do cost-benefit analyses
underwent a “significant change” after President Obama issued Executive Order 13579,
in which he encouraged (but did not require) independent regulatory agencies to comply
with the principles and procedures in EO 13563 (which included many of the principles
in EO 12866). After the issuance of these executive orders in 2011, the Chairman of the
Commission reportedly sent a directive to agency staff that one official said “really
encouraged us to find ways to make sure our actions were consistent with those
directives.” Since then, she said, there has been a “concerted effort to insert a more
rigorous cost-benefit analysis into our rulemaking processes.” FCC officials said it is
now understood that it is “an expected part of the agency’s decision making,” and that
when the Office of the General Counsel reviews rules for compliance with the APA and
other statutes, they now look to see that the rule contains evidence of having considered
costs and benefits.
The officials said FCC does not just do cost-benefit analyses for “major” rules, but
instead views it as a “sliding scale” in which the more important rules generally get more
analysis than less important ones. One senior FCC official said that when Congress
mandates that the agency achieve a certain result, the agency’s study might be more of a
“cost-effectiveness” analysis than a cost-benefit analysis. In those cases, he said, the
focus is on finding the least costly or most cost-effective way to accomplish the
statutorily mandated objective. He said the emphasis in all of their studies is to work
with rule writers early in the process, to build the administrative record and ask the right
questions—not just to have a “cost-benefit” section in the rule.

a)

Recent FCC Rules

FCC officials said that substantive rules that have come out within the previous year
should evidence more analysis than earlier rules, although they cautioned that there won’t
always be a separate section of the preamble that says “cost-benefit analysis.” To test
whether the FCC is doing more in the way of economic analysis than in previous years,
the author of this report examined several rules that the agency issued during calendar
year 2012 that, while not “major” rules, were coded as “significant/substantive” in the
GAO database.
One of the agency’s most recent rules appears to have been predicated on analysis, and
the agency committed to further analysis. In that September 2012 rule,364 FCC responded
to a petition for rulemaking and suspended its existing rules allowing for automatic
pricing flexibility grants for special access services “in light of evidence that the proxies
364

Federal Communications Commission, “Special Access for Price Cap Local Exchange Carriers,” 77 Federal
Register 57504, September 18, 2012.

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for measuring actual and potential special access market competition…do not accurately
predict whether competition is sufficient to constrain special access prices and deter
anticompetitive practices by price cap local exchange carriers.” The agency also initiated
a process to obtain data to conduct a special access market analysis “to determine the
extent to which the special access market is competitive and develop special access
pricing flexibility rules to replace the collocation-based competitive showings.”
In another substantive rule, published in August 2012,365 the agency said it would
“remove regulatory barriers that today limit the use of spectrum for wireless backhaul
and other point-to-point and point-to-multipoint communications. This will also facilitate
better use of Fixed Service (FS) spectrum and provide additional flexibility to enable FS
licensees to reduce operational costs and facilitate the use of wireless backhaul in rural
areas. By enabling more flexible and cost-effective microwave services, the Commission
can help foster deployment of broadband infrastructure across America.” The agency
appeared to have done some analysis of expected costs and benefits. For example, FCC
said:
We find that permitting smaller antennas in the 6, 18 and 23 GHz bands will benefit
operators and consumers alike and that these benefits outweigh any potential costs. Our
actions today will enable these spectrum bands to be used more intensively for wireless
backhaul, public safety, and other critical uses. Even for a single link, which consists of
two transmitters and two antennas, the cost savings from allowing smaller antennas can
be substantial. Savings in installation costs for the link would likely be over $2,000 for
two antennas. MetroPCS estimates that if a smaller antenna eliminates the need for wind
loading studies or structural changes to a tower, the cost savings could run “into the tens
of thousands, if not hundreds of thousands, of dollars.” There would also be savings in
operational costs. For example, if an operator using a 6 GHz link is able to use 3-foot
antennas instead of 6-foot antennas, its site rental costs could decrease by $7,200 each
year. There are also additional cost savings noted by FiberTower and others. When those
cost savings are multiplied by the thousands of links that are authorized in the 6 GHz
band each year, even if a relatively small percentage of authorized links could use smaller
antennas, there could be many instances where operators could recognize cost savings.
While the cost savings in the 18 and 23 GHz bands would be smaller, since there is less
difference in the size of antennas, there would still be cost savings. On the other hand,
there is some risk that a carrier taking advantage of these new rules may have to upgrade
to a Category A antenna later.366

The agency also did an RFA analysis describing the need for the rule, the number of small
entities affected, and the alternatives considered.

b)

Why Certain Analyses Are Not Done

FCC officials indicated that one reason the agency did not prepare cost-benefit analyses
more frequently in the past was the absence of a statutory requirement to do so. Had
there been such a requirement, they said, the agency would have complied with the
365

Federal Communications Commission, “Facilitating the Use of Microwave for Wireless Backhaul and Other Uses
and Providing Additional Flexibility to Broadcast Auxiliary Service and Operational Fixed Microwave Licensees,” 77
Federal Register 54421, August 22, 2012.
366
Ibid., 77 Federal Register 54423.

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statute. One official noted, however, that some statutory provisions under which the
agency issues rules are so specific that a cost-benefit analysis probably would not have
affected agency decision making.
More recently, the officials indicated that the agency’s ability to prepare a good analysis
is sometimes hindered by difficulty in getting good data, particularly in relation to
quantifying costs and benefits. One official said that sometimes there are data that could
be useful in an analysis, but the data are proprietary or come with so many restrictions
(e.g., nondisclosure provisions) that their use becomes problematic.
One FCC official described the Paperwork Reduction Act as a “major impediment” to
gathering the data they need in analysis. He said the agency could not gather information
from 10 or more individuals or companies without an OMB clearance (and sometimes
from less than 10 individuals or companies, if the population to be surveyed constitutes a
substantial portion of an industry).367 However, he said that the Obama Administration
had made “significant efforts” to minimize the hurdles to gathering such information
within the limits of the PRA, allowing agencies to obtain streamlined approvals for
certain information collections.
Another FCC official said the primary problem they have in doing analyses in certain
areas (e.g., spectrum allocation) is that they are regulating in new space with new
technology, there is “no record there,” and therefore nobody knows how to quantify
benefits or costs with any degree of precision. In such cases, he said, said they try to put
a lower bound on benefits, and an upper bound on costs, to know whether the rule would
produce positive net benefits.
7.

Nuclear Regulatory Commission

The NRC issued one major rule during FY2012, a revision of the licensing, inspection,
and annual fees that the NRC charges to its applicants and licensees.368 The Omnibus
Budget Reconciliation Act of 1990, as amended, and the Atomic Energy Act of 1954, as
amended, require NRC to recover through fees approximately 90% of its budget
authority. The agency did not prepare a cost-benefit analysis or identify alternatives
because of these fee recovery requirements. Based on the appropriations for FY2012,
NRC’s required fee recovery amount was approximately $1,038.1 million for the year.
After accounting for billing adjustments, the total amount billed as fees to licensees was
about $901 million. Therefore, this rule was considered “major” only because it involved
budget transfers of more than $100 million per year.

367

As noted earlier in this report, PRA regulations indicate that a covered “collection of information” can involve fewer
than 10 individuals or organizations if those organizations represent a substantial portion of an industry. See 5 CFR
1320.3(c)(4)(ii).
368
U.S. Nuclear Regulatory Commission, “Revisions of Fee Schedules; Fee Recovery for Fiscal Year 2012,” 77
Federal Register 35809, June 15, 2012.

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Six of the eight major rules that the NRC issued since 2007 were these fee schedule rules.
One of the two non-fee schedule rules that were published during this period amended the
definition of “total effective dose equivalent” and limited the routine reporting of annual
doses to those workers whose annual dose exceeds a specific dose threshold or who
request a report.369 The rule also modified the labeling requirements for certain containers
holding licensed material within posted areas in nuclear power facilities, and removed the
requirement that licensees attempt to obtain cumulative exposure records for workers
unless those workers are being authorized to receive planned special exposure. GAO’s
major rule report indicated that the NRC prepared a regulatory analysis of the rule, and
determined that the total implementation cost to NRC of this final rule would be $68,000.
The agency estimated that the total operating impact on the NRC would be between
$650,000 and $980,000, and on “agreement states” would be between $1.9 million and
$2.7 million.370 NRC concluded that the net present value of this rule was between $135
million and $237 million (primarily driven by reduced industry operating costs), and
estimated that the rule would reduce annual paperwork burden by 132,000 hours. The
agency said it was issuing the rule “because the changes improve the effectiveness of the
Commission's regulations and reduce unnecessary regulatory burden without affecting
the level of protection for either the health and safety of workers and the public or for the
environment.”371
The other non-fee schedule rule amended the NRC’s security regulations and added new
security requirements pertaining to nuclear power reactors.372 It established and updated
generically applicable security requirements similar to those previously imposed by
Commission orders issued after the terrorist attacks of September 11, 2001. Additionally,
the rule added several new requirements not derived directly from the security order
requirements but developed as a result of insights gained from implementation of the
security orders, review of site security plans, implementation of the enhanced baseline
inspection program, and NRC evaluation of force-on-force exercises. It also updated the
NRC's security regulatory framework for the licensing of new nuclear power plants. The
agency did a regulatory analysis for the rule, but did not discuss the results in the
preamble, referring readers to a separate document. In that document,373 the agency said
that the rule would “result in a total one-time cost to all nuclear power plant sites of
approximately $115.71 million, followed by total annual costs on the order of $38.65
million. The total present value of these costs is estimated at $590.23 million (using a 7percent discount rate) and $857.33 million (using a 3-percent discount rate) over the next

369

U.S. Nuclear Regulatory Commission, “Occupational Dose Records, Labeling Containers, and the Total Effective
Dose Equivalent,” 72 Federal Register 68043, December 4, 2007.
370
Section 274 of the Atomic Energy Act provides a statutory basis under which NRC relinquishes to the states
portions of its regulatory authority to license and regulate byproduct materials (radioisotopes); source materials
(uranium and thorium); and certain quantities of special nuclear materials. See http://www.nrc.gov/about-nrc/statetribal/agreement-states.html for more information about the agreement states program.
371
72 Federal Register 68058.
372
U.S. Nuclear Regulatory Commission, “Power Reactor Security Requirements,” 74 Federal Register 13926, March
27, 2009.
373
U.S. Nuclear Regulatory Commission, “Regulatory Analysis of Final Power Reactor Security Requirements,”
available at http://pbadupws.nrc.gov/docs/ML0833/ML083390372.pdf.

106

30 years.”374 The average nuclear power plant was expected to incur a one-time cost of
approximately $1.78 million followed by annual costs of approximately $594,600.
Benefits were described in qualitative terms, including protection against radiological
sabotage and increased effectiveness of licensees’ security programs. Overall, the NRC
concluded that the costs “are justified based on these qualitative benefits.”
NRC officials interviewed for this report said the agency’s procedures do not require staff
to prepare a full cost-benefit analysis for its rules when the goal of the rule is to provide
“adequate protection” of public health and safety. Nevertheless, they said the agency
does prepare an analysis of costs for these rules to ensure the regulatory alternative
selected is the most cost-effective alternative to achieve that “adequate” level of
protection. They said NRC rules that go beyond “adequate protection” are required to
have a complete analysis of benefits and costs. Also, for “backfitting” analyses, the
agency must show that there will be a substantial increase in public health and safety.
The officials said that in all of these analyses, the emphasis is on the cost side of the
equation, with benefits almost always described in qualitative terms. They said that the
NRC has decided not to use “break-even” analyses to describe benefits in terms of certain
risk scenarios (as is done in some rules issued by the Department of Homeland Security)
because the agency has no way of determining the probability of certain events (e.g.,
terrorist attacks), and did not feel comfortable simply postulating that some event “could”
occur.375 They said unlike the National Highway Traffic Safety Administration, the NRC
does not have accident data to show the likelihood of certain catastrophic events.
The NRC officials said that regulatory analysts occasionally work with the technical
teams writing the rules (including the preamble, rule language, and regulatory analyses,
including NEPA and RFA analyses), but that technical members’ general knowledge of
costs for facility changes frequently allows selection of more cost efficient options early
in rule development. The rule package then comes to the agency’s office of general
counsel, which reviews the rule for legal sufficiency, internal consistency, and logic.
NRC officials said the agency’s fee structure rules do not contain a cost-benefit type of
analysis. Instead, the agency’s chief financial officer prepares the analysis based on the
agency’s actual costs of regulating the nuclear industry, and uses that information to
determine the appropriate amount of fees.

VII. How Analyses Are Used in Agency Decision
Making
Agency officials interviewed for this report frequently indicated that regulatory analysis
is often woven into the early stages of the rulemaking process, with the preparation of a
374

Ibid., p. i.
“Break-even” analyses show at what point the value of the expected health benefits equals the cost. For more
information, particularly showing its use in homeland security rules, see CRS Report R41140, How Agencies Monetize
“Statistical Lives” Expected to Be Saved By Regulations, by Curtis W. Copeland, March 24, 2010, available at
http://assets.opencrs.com/rpts/R41140_20100324.pdf, pp. 21-24.
375

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formal cost-benefit analysis not occurring until the preparation of the final release.
Therefore, it is often difficult to determine exactly what constitutes the agencies’
“analysis,” or exactly how any such analysis affected agency decision making with regard
to a particular rule. For example, CPSC officials said the economists often get involved
with the divisions early in the rule writing process, giving them a sense of what the
economic implications might be. NRC officials also indicated that technical staff develop
agency rules and regulatory analysts occasionally work with technical staff on associated
cost analyses. They also said the analyses would most likely affect decision making in
the agency as part of the rule development process, when the agency is laying out the
various alternatives that could be considered. That analysis, they said, would likely show
which alternative was most cost-efficient.
CFTC officials also said that economists work with rule writing staff early in the process,
asking questions about costs, benefits and alternatives. They described the analysis not
as a single event, but as an “ongoing thought process.” The officials said the leader of the
rule writing team is from a line division, but other team members include representatives
from the Office of the Chief Economist and the Office of General Counsel. They said
team members continue to work together even after the rule is issued, monitoring the
implementation of the rule. The officials also said there have been instances in which the
analysis changed the nature of the final rule. For example, they said the analysis in one
rule on swap dealers indicated that costs at one regulatory threshold would be very high,
so the agency changed the threshold (from $100 million to $8 billion), and thereby
reduced costs.
A senior FCC official said that the rule writers in the bureaus do most of the analytic
work in the agency (since they know the subject matters best, and the record), but there is
substantial interaction and consultation with economists during the process about how
such studies should be done. He said that getting the analyses done early in the
rulemaking process has been a “big push that we’ve been making.” Another FCC official
said preliminary analyses are prepared before any decisions are made about a rule, and
are part of the agency’s consideration of regulatory options. She said the analysis is not
done to justify decisions already made. CPSC officials also said economic discussions
during rule development frequently influence decision making, with the formal analysis
being done after the rule’s dimensions are known. They also said that economic analyses
are not done after the fact to justify decisions that have already been made.
Some agency officials indicated that regulatory analyses had changed the way that their
agencies viewed an issue, or had other types of effects. SEC staff pointed to
commissioners’ public statements at an April 18, 2012, open meeting regarding rules
defining swaps-related terms in which commissioners indicated that the analysis had been
helpful to them in coming to an agreed-upon policy recommendation. SEC Chairman
Mary Schapiro noted at that meeting that the “data analysis informed the de minimis
thresholds, which have been tailored to the specifics of the products and the markets at
issue, with a goal of preserving key counterparty and market protections while promoting
regulatory efficiency.” In particular, she said that for “security-based swaps other than
credit default swaps, we were guided in part by data that showed that the size of this

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market is only a small fraction of the size of the CDS market.”376 Commissioner Troy A.
Paredes went even further, saying
…data ultimately came to play a key role in the rulemaking, especially in shaping the de
minimis exception, including the phase-in. The Division of Risk, Strategy, and Financial
Innovation’s analysis gave the Commission a solid basis for evaluating the impact of
different possible de minimis thresholds. To my mind, until our attention turned to the
data, it was difficult to find adequate support for the various de minimis thresholds that
were considered. As is the promise when decisions are rooted in data, Risk Fin’s analysis
allowed the Commission to make a more informed, disciplined choice in discharging our
regulatory duties and to steer clear of what otherwise could have been an arbitrary
conclusion about where to draw the de minimis line. 377

CPSC officials also said that regulatory analyses had affected agency decision making,
noting in particular that a 2008 proposed rule on upholstered furniture changed “pretty
substantially” as a result of the economic analyses that were done during rule
development. (The analysis reportedly indicated that some aspects of the original
standard had high costs and little apparent benefits.) They also said there have also been
instances in which an analysis led the agency to decide not to go forward with a rule.
On the other hand, FCC officials said it is often difficult to say exactly what effect
analysis has on agency decision making. They said commissioners want to know how a
rule is going to be viewed, and part of that is understanding how burdensome the rule will
be. Although the information is certainly presented as part of the commissioners’
decision-making process, but they cannot know how it affects them. When
Commissioners decide not to go forward with a rule, they said it may be the analysis that
leads them to that conclusion, or it may be something else entirely. Conceptually,
however, they said that the analysis can help the Commissioners decide where along the
rulemaking spectrum the agency ends up (e.g., the number of entities affected, and the
types of options considered). They also pointed out that the analysis can come into play
in responding to comments about the expected costs of the rule, either confirming or
disconfirming those views.
According to an August 2012 “economic consequences” paper prepared by the NRC’s
Executive Director for Operations, a regulatory analysis is an “analytical tool used by
NRC decisionmakers to assist in determining whether the NRC should implement a
proposed regulatory action.” Citing the agency’s 2004 revision of the regulatory analysis
guidelines, it goes on to say that the analysis “is intended to be an integral part of the
NRC’s decision making, and should not be used to produce after-the-fact rationalizations
to justify decisions already made, nor should it unnecessarily delay regulatory actions.” 378
However, the notation vote paper also makes clear that courts have interpreted the
Atomic Energy Act as prohibiting the NRC from taking regulatory costs into
consideration when determining that a regulatory action is necessary for “adequate

376

See http://www.sec.gov/news/speech/2012/spch041812mls.htm.
See http://www.sec.gov/news/speech/2012/spch041812tap.htm.
378
NRC Notation Vote Paper, op cit., Enclosure 5, p. 1.
377

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protection” of public health and safety. On the other hand, the paper points out that the
NRC can consider costs when establishing levels of protection beyond “adequate.”
NRC officials said the preliminary “back-of-the-envelope” analyses that are done by
regulatory analysts and technical staff as part of the decision as to whether to go forward
with a rule are the types of analyses that likely have the biggest effect on decision making
(i.e., whether the staff recommend the rule to the Commission). The staff has to make the
preliminary determination that a rule would provide “adequate” protection and, if the rule
goes beyond what is required for adequate protection, must also determine that the
anticipated costs of the rule can be justified in terms of the (generally qualitatively
described) benefits anticipated. The officials said this analysis sometimes shows that
certain rules with multiple related components may be justifiable in the aggregate, but
that certain components could not be justified individually. As a result, there have been
discussions within the Commission regarding when components are so related that the
agency has to consider them as a group.

VIII.

Concluding Observations

Although independent regulatory agencies have historically issued fewer final rules and
fewer major rules than most Cabinet departments and independent agencies like EPA, the
enactment of the Dodd-Frank Act in 2010 has substantially increased the level of
rulemaking activity in certain agencies (e.g., CFTC). In many cases, the agencies had to
act quickly; more than 100 of the 330 provisions in the act requiring or permitting the
issuance of regulations stipulated that the rules had to be issued within two years of the
enactment of the legislation (i.e., by July 2012), and 73 of those had to be issued within
the first year (i.e., by July 2011).379 Other legislation has had a similar effect on other
independent regulatory agencies (e.g., the enactment of CPSIA in 2008 that resulted in
increased regulations issued by CPSC).
More than a dozen bills were introduced in the 112th Congress that would have required
such agencies to prepare cost-benefit and other types of economic analyses before issuing
certain rules. One bill (S. 3468) would have authorized the President to issue an executive
order requiring the agencies to prepare such analyses for their “economically significant”
rules. (It is currently unclear whether the President could issue such an executive order in
the absence of such authorizing legislation.) Similar bills have already been introduced
during first few months of the 113th Congress.380
379

U.S. Congressional Research Service, Rulemaking Requirements and Authorities in the Dodd-Frank Wall Street
Reform and Consumer Protection Act, by Curtis W. Copeland, CRS Report R41472, November 3, 2010, Table 2, p. 12,
available at http://www.llsdc.org/attachments/files/255/CRS-R41472.pdf.
380
For example, S. 450, the “Financial Regulatory Responsibility Act of 2013,” would require “enhanced economic
analysis and justification of regulations proposed by certain Federal banking, housing, securities, and commodity
regulators.” Covered agencies include the Board of Governors of the Federal Reserve System, CFPB, CFTC, FDIC,
the Comptroller of the Currency, NCUA, and the SEC. H.R. 1003 would “improve consideration by the Commodity
Futures Trading Commission of the costs and benefits of its regulations and orders.” H.R. 1062 would also require an
assessment of costs and benefits before the Securities and Exchange Commission issues its rules.

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Previous studies of the extent to which independent regulatory agencies conduct costbenefit or other types of analyses have frequently reached the same overall conclusion –
i.e., although these agencies often provide qualitative descriptions of the costs and
benefits of their major rules, they often discuss those effects in quantitative or monetary
terms only in the context of their discussions of paperwork costs. Some of these studies
(e.g., OMB’s annual reports to Congress on costs and benefits, and the CCMR letter to
the House and Senate banking committees) suggest that independent regulatory agencies
are doing little to assess potential costs and benefits. In fact, however, the agencies often
at least qualitatively discuss regulatory costs and benefits (and often discuss at least some
costs in quantitative or even monetary terms), or the rules themselves do not appear to
merit a full cost-benefit analysis (e.g., because they simply delayed the effective dates of
previous major rules, or were focused on relatively insignificant agency actions that
would not have been covered by the cost-benefit analysis requirements in EO 12866 and
OMB Circular A-4 had they been issued by Cabinet departments or independent agencies
like EPA). Several of the major rules that OMB characterized as having no monetized
cost information did, in fact, contain monetary estimates of at least some regulatory costs.
CCMR characterized the agencies’ cost-benefit analysis efforts as “inadequate,” but the
study included a number of rules that were not substantive, had little impact on nonfederal entities, or actually contained discussions of costs and benefits.
Agency officials offered several reasons why independent regulatory agencies’ analyses
of major rules often are not as detailed or quantitative as those contemplated in Circular
A-4. For example, they said statutes as the Dodd-Frank Act and CPSIA have sometimes
required these agencies to regulate in new areas where little information about regulatory
costs or benefits may exist. Although regulated entities may have relevant information
that may allow the agencies to quantify costs and benefits, they may also be reluctant to
provide such data for competitive reasons. Costs and benefits can also be difficult to
estimate when rules give regulated entities flexibility in how they can comply with
certain requirements, when disclosure requirements may or may not make certain risky
behaviors less likely, or when the agencies are given tight deadlines to issue certain rules.
Agency officials also pointed out that most independent regulatory agencies are not
specifically required in their authorizing statutes to prepare cost-benefit analyses, and
(because Congress established these agencies to be more independent of the President)
relevant executive orders and circulars do not cover them. Each of the independent
regulatory agencies examined in this report has a unique statutory environment, and each
has reacted to congressional, judicial, and presidential stimuli in different ways. For
example:


The SEC arguably has the least specific statutory requirements (i.e., to
“consider” the effects of the agency’s rules on efficiency, competition, and
capital formation), and in recent years was regarded by OMB and others as
having prepared the best economic analyses of all independent regulatory
agencies. However, the confluence of two OIG reports, two GAO reports,
congressional hearings, and the Business Roundtable decision have caused

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the agency to improve its performance even further, and to issue new
analytical guidance that closely adheres to OMB Circular A-4. For example,
SEC guidance now instructs the agency’s analysts to use a pre-statutory
baseline in estimating costs and benefits (as recommended in the circular),
even when the agency’s rules closely reflect statutory requirements. The
agency has also hired more economists, and has reportedly slowed down the
pace of its rulemaking until they have been thoroughly analyzed and
approved.


CFTC is required to “consider the costs and benefits” of the agency’s
regulatory actions, but has taken a different approach than the SEC with
regard to the baseline, reiterating the agency’s earlier position that
regulatory costs and benefits should be measured against the post-statutory
environment. As a result, costs and benefits that are directly attributable to
statutes like the Dodd-Frank Act are not taken into account in those analyses.



Federal “banking agencies” (i.e., the Comptroller of the Currency, FDIC, and
the Board of Governors of the Federal Reserve System) are required to
“consider” any administrative burdens that their regulations would place on
depository institutions, as well as the benefits of those regulations. These
agencies’ OIGs indicated that these and other statutory rulemaking
provisions do not require the agencies to prepare a cost-benefit analysis.



Before issuing consumer product safety rules, CPSC is statutorily required to
prepare a “regulatory analysis” containing a description of potential costs
and benefits, and a description of the costs and benefits of alternatives that
were considered by the Commission. However, the agency has interpreted
legislation enacted in 2008 with tight regulatory deadlines and other
features as effectively negating those analytical requirements. Noting these
deadlines, the agency said in its most recent major rule “we decline to
conduct a cost-benefit analysis,” but did take certain actions to reduce
regulatory burden.



FCC statutes do not require the agency to prepare cost-benefit or other types
of analyses for its rules, and FCC officials said cost-benefit analysis at the
agency was “hit-or-miss” until the Chairman decided in 2011 that the agency
should do more to comply with Executive Order 13563 and Executive Order
13579.



The NRC is not statutorily required to prepare cost-benefit analyses, but has
been voluntarily conducting regulatory analyses for more than 35 years. The
agency’s guidelines conform to the general principles of Circular A-4.
However, the agency’s analyses focus primarily on regulatory costs, and
courts have interpreted the Atomic Energy Act as not permitting the NRC to

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take costs into consideration when a regulatory action is necessary for
“adequate protection” of public health and safety.
Agency officials frequently indicated that the less quantitative nature of their analyses is
partly due to the nature of their agencies’ statutory analytical requirements. More than
one agency official told the author of this report that their agency does what the law
requires them to do. The agencies often view requirements to “consider” costs and
benefits, effects on competition, or other effects as not requiring cost-benefit analyses on
the level described in OMB Circular A-4. Even in the wake of the July 2011 Business
Roundtable decision, SEC’s March 2012 guidance memorandum states “No statute
expressly requires the Commission to conduct a formal cost-benefit analysis as part of its
rulemaking activities.”
Several independent auditors who have examined these agencies’ statutes and rules have
reached the same conclusion. For example, the OIG for the Board of Governors of the
Federal Reserve System said in its June 2011 report that the statutes related to the
agency’s rulemaking authority “generally do not require economic analysis on the part of
the agency’s rulemaking activities.”381 GAO said in its November 2011 report on rules
issued under the Dodd-Frank Act that “none of the regulators are required to conduct
benefit-cost analysis.”382 Others, however, contend that agencies cannot “consider” those
effects without preparing some type of analysis, and that agencies should clearly spell out
why quantitative analysis is not possible for certain rules.
In some statutes, Congress has specifically directed certain agencies to prepare costbenefit analyses. Congress is less clear in other statutes, which only require agencies to
“consider” the costs and benefits of their actions, or “consider” the effects of their rules
on competition and other factors. Some contend that Congress obviously knows how to
require independent regulatory agencies to prepare cost-benefit analyses, since it has
done so in some but not all of the agencies’ underlying statutes. Therefore, requiring
agencies to “consider” cost, benefits, or other factors appears to represent a lower
analytic standard. Several recent court decisions, however, have interpreted these
“consider” requirements to constitute a de facto requirement that the agencies prepare
extensive cost-benefit analyses.

A.

Congressional Options

Congress has several options as it considers how to react to the current situation.
Congress could decide to keep in place the current set of statutory provisions governing
rulemaking analysis by independent regulatory agencies. If so, it is likely that regulated
entities will continue to challenge the agencies’ rules, and the courts will continue to
381

Office of the Inspector General, Board of Governors of the Federal Reserve System, “Response to a Congressional
Request Regarding the Economic Analysis Associated with Specified Rulemakings,” June 13, 2011, p. 6. The report is
available at http://www.federalreserve.gov/oig/files/Congressional_Response_web.pdf.
382
GAO-12-151, Highlights.

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determine what Congress intended when the statutes state that agencies must “consider”
costs, benefits, or other factors before issuing certain rules.
On the other hand, Congress could enact legislation clearly stating whether or not
independent regulatory agencies should prepare cost-benefit or other types of economic
analyses before issuing their rules. Regardless of how the issue is resolved (i.e., either
requiring agencies to prepare such analyses or stating that they need not do so), taking
action would allow Congress to reclaim the authority to determine the meaning of the
statutory requirements that it enacts. If Congress decides to require independent
regulatory agencies to prepare cost-benefit analyses, it could do so either by amending
each agency’s statutory rulemaking authority, or by enacting crosscutting legislation that
is applicable to all such agencies. Either way, Congress could also make clear how these
new requirements are to interact with, or supplant, existing analytical requirements and
other statutory provisions (e.g., provisions that courts have interpreted as not permitting
costs to be taken into account in agency decision making).
Agency-specific or crosscutting legislation could also clearly indicate how independent
regulatory agencies’ cost-benefit analyses should be conducted. For example, the
legislation could clearly state whether the agencies’ estimates of costs and benefits should
include provisions that are mandated in the statute, or be confined to discretionary
elements in the rule. Alternatively, Congress could require the agencies to follow the
“best practices” that have been identified in OMB Circular A-4 for their “major” or
“economically significant” proposed and final rules. Referencing the circular in a statute
would, however, make the long-term effect of any such requirement contingent upon
possible future changes in the circular by future presidential administrations.

B.

Agency Options

Even if Congress decides not to enact legislation requiring all or certain independent
regulatory agencies to prepare cost-benefit analyses, few would argue that the agencies
should not consider the anticipated effects of their rules before they are issued as
carefully as possible. Most independent regulatory agencies assert that they already do
so, but most would also likely agree that they could take additional actions on their own
to improve the quality of the economic analyses that they prepare for at least their major
rules. Current statutory requirements that these agencies “consider” costs and benefits or
other factors represent an analytical “floor,” not a “ceiling,” and generally do not limit
what the agencies are able to do voluntarily to support such considerations. Even
agencies with no specific statutory requirements for cost-benefit analysis are arguably not
prohibited from doing such analyses. To do more, agencies could voluntarily adhere to
variety of analytical “best practices” that have been described in the literature and
elsewhere.

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1.

Circular A-4 Principles

Perhaps the most widely cited compendium of analytical “best practices” is OMB
Circular A-4, which states that it is “designed to assist analysts in regulatory agencies by
defining good regulatory analysis… and standardizing the way benefits and costs of
Federal regulatory actions are measured and reported.”383 Several of the independent
regulatory agency officials interviewed for this report cited Circular A-4 as a useful
compendium of best practices, and some reference it in their own written procedures
(e.g., the SEC’s March 2012 guidance document and the NRC’s 2004 Regulatory
Analysis Guidelines). Also, as noted earlier in this report, GAO’s November 2011 report
recommended that federal financial regulators take steps to better ensure that the specific
practices in Circular A-4 are “more fully incorporated into their rulemaking policies and
consistently applied.384 Some of the agencies agreed with the recommendations, while
others cited actions they had taken or planned to take regarding the recommendations.385
GAO reiterated this recommendation in its December 2012 report.386
Both Circular A-4 and a more recently issued regulatory impact analysis “primer”
summarizing the circular identify three basic elements of a good regulatory analysis: (1)
a statement of need for the regulatory action, including a description of the problem that
the agency seeks to address, any statutory or judicial directives, and the extent of agency
discretion permitted; (2) an examination of plausible alternative regulatory approaches
(e.g., no regulation, State or local regulation, differing levels of stringency, informational
measures, and the use of performance objectives instead of detailed regulatory
directives); and (3) an estimate of the benefits and costs – both quantitative and
qualitative – of the proposed regulatory action and its main alternatives. Although neither
the circular nor the primer address statutory analytical requirements like the RFA and the
PRA, these three general principles appear applicable to them as well. As Table 6 below
illustrates, the RFA, the PRA, and EO 12866 (on which Circular A-4 is based) each
require agencies to identify the rule’s need and/or legal basis, assess costs and/or benefits,
and identify the alternatives considered.
Table 6: Similar Elements in Analyses Pursuant to the RFA, the PRA, and EO 12866
Elements
Required in
Analysis
Need/legal basis

RFA

PRA

EO 12866

IRFA is to include a
“description of the reasons
why action by the agency is
being considered” and “the

Federal Register notice is to
include a “brief description of
the need” for the information
collection, and the submission

Agencies are to provide to
OMB a “description of the
need for the regulatory action
and…how the regulatory

383

In fact, Circular A-4 replaced a 1996 “best practices” document that was issued as guidance in 2000, and reaffirmed
in 2001.
384
GAO-12-250, p. 39.
385
Ibid., p. 40.
386
GAO-13-101, Highlights.

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objectives of, and legal basis
for,” the rule; FRFA to
include a “statement of the
need for, and objectives of,
the rule.”

to OMB is to include the
statutory authority for the
collection.

action will meet that need”;
also an “explanation of the
manner in which the
regulatory action is consistent
with a statutory mandate.”

Assessment of
costs and/or
benefits of the
rule

FRFA is to include a
“description of… [the]
compliance requirements”
including the number and
classes of affected small
entities and the skills needed.

Notice to include an
“estimate of the burden that
shall result” from the
information, and agency
review includes a “specific,
objectively supported
estimate of burden.”

Agencies are to provide an
“assessment, including the
underlying analysis,” of costs
and benefits anticipated from
the action, including
quantification (if feasible).

Alternatives and
reasons for
selection

IRFA is to “discuss significant
alternatives” to the rule;
FRFA to include “steps the
agency has taken to minimize”
the economic effects of the
rule, and explain why other
significant alternatives not
selected.

Agencies are to certify to
OMB and provide evidence
that paperwork burden has
been reduced to extent
possible (e.g., through
consideration of different
reporting provisions,
exemptions, and simplified
provisions).

Economic analysis is to
include an “assessment… of
costs and benefits of
potentially effective and
reasonably feasible
alternatives to the planned
regulation.” Agencies are to
explain why the planned
action is preferable to the
alternatives.

Source: Examination of RFA, PRA, and EO 12866 analytical requirements. This table was drawn from the
author’s previous report for ACUS, available at http://www.acus.gov/wpcontent/uploads/downloads/2012/03/COR-Copeland-Report-CIRCULATED.pdf.

Circular A-4 goes into great detail in a variety of other areas. The sections below
mention several of those areas in the context of independent regulatory agencies –
defining the baseline for the analysis, quantifying and monetizing the benefits and costs,
transparency and reproducibility, and summarizing the results of the analysis. However,
as a general principle, it appears that the independent regulatory agencies could
voluntarily adopt these three principles to provide the basic organizing structure for their
regulatory analyses.
Recommendation: Independent regulatory agencies should voluntarily adopt the general
principles for economic analysis contained in OMB Circular A-4 to structure their
analyses: (1) identify the need for the regulation, (2) examine plausible alternative
regulatory approaches, and (3) estimate the benefits and costs of those alternatives.

a)

Defining the Analytical Baseline

A major issue arising from the OIG reports is whether independent regulatory agencies’
analysis should include the costs and benefits of regulatory provisions that are directly
traceable to the underlying statute. This is a particularly important issue with regard to
the development of regulations under the Dodd-Frank Act, which the agencies indicate
contains numerous provisions that give the agencies little or no discretion in terms of how
their rules can be written. Circular A-4 states that if substantial portions of a rule simply
restate statutory requirements that would be self-implementing, even in the absence of the

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regulatory action, the issuing agency “should use a pre-statute baseline.”387 However, the
circular goes on to say that if analysts “are able to separate out those areas where the
agency has discretion, you may also use a post-statute baseline to evaluate the
discretionary elements of the action.”388
Both the SEC and CFTC initially took the position that their cost-benefit analyses should
not include statutorily directed requirements. In March 2012, though, the SEC adopted a
new position that is consistent with Circular A-4. Specifically, the guidance states that
“where a statute directs rulemaking, rulewriting staff should consider the overall
economic impacts, including both those attributable to Congressional mandates and those
that result from an exercise of the Commission’s discretion.” (Emphasis in the original.)
However, the CFTC major rules issued during FY2012 clearly indicate that the agency
does not include costs or benefits attributable to statutory provisions. CFTC officials
pointed out that Section 15(a) of the Commodity Exchange Act requires the agency to
consider the costs and benefits of the agency’s action, not the effects of congressional
decisions. Other independent regulatory agencies have indicated that they also treat the
baseline issue differently.389 The baseline issue may illustrate a broader principle – i.e.,
that agencies may have to tailor their consideration of Circular A-4 and other “best
practices” to their own statutory and regulatory environment.
Recommendation: Consistent with applicable laws, independent regulatory agencies’
analyses should generally include both statutorily mandated requirements and those
resulting from the agency’s discretion. Showing both types of effects separately can
improve transparency and allow the public to understand whether Congress or the
agency is responsible for regulatory burden.

387

See http://www.whitehouse.gov/omb/circulars_a004_a-4. Similarly, the OMB “primer” on regulatory analysis states
that “For regulations that largely restate statutory requirements, the analysis should use a pre-statutory baseline,” and
therefore should include costs and benefits attributable to the statute. See
http://www.whitehouse.gov/sites/default/files/omb/inforeg/regpol/circular-a-4_regulatory-impact-analysis-aprimer.pdf, pp. 4-5.
388
GAO examined the issue of statutory discretion in 1999, and determined that the statutes underlying some
controversial rules gave the issuing agencies little or no discretion in how the rules could be written. See U.S. General
Accounting Office, Regulatory Burden: Some Agencies’ Claims Regarding Lack of Rulemaking Discretion Have Merit,
GAO/GGD-99-20, January 8, 1999.
389
For example, CPSC officials told the author of this report that the agency uses the “pre-statute status quo” in
calculating costs and benefits, even when the agency has little or no discretion. FCC officials, on the other hand, said
that when developing estimates of costs and benefits for rules in which the agency has little or no discretion, the agency
generally uses a post-statutory baseline. However, they also said it is rare that statutes give the agency little or no
discretion, so the issue of what baseline to use does not come up that often. NRC officials said agency decisions on
rulemaking are affected by the baseline (e.g., when the agency issues a rule requiring certain practices that the industry
has been doing voluntarily for years, or that were previously covered in NRC orders). The NRC’s regulatory analysis
guidelines make clear that both baselines should be analyzed: (i) no credit for industry voluntary action in terms of
benefits, and therefore all costs for compliance with the proposed regulatory requirement; and (ii) credit for industry
voluntary action (thereby reducing the expected level of benefits) but also marginal costs of compliance with the
proposed regulatory action beyond that already incurred under the industry voluntary action. This is reflected in
NUREG/BR-0058, Revision 4, at Section 4.3.1, pp. 24-26.

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b)

Quantifying and Monetizing Benefits and Costs

In some areas, independent regulatory agencies have indicated that it may be difficult to
determine the future costs and benefits of a rule with any degree of precision or certainty,
such as:


when regulating in “new space” or “dark markets” that the agency has not
previously regulated (e.g., derivatives clearing organizations);



when it is difficult to know how the behaviors of individuals and
organizations will change, such as when the agency gives regulated entities
flexibility in how to respond (as agencies are generally encouraged to do), or
when the objective of the rule is information disclosure (on the assumption
that the disclosed information will make certain risky behaviors less likely);
or



when regulated parties are reluctant to provide proprietary information on
compliance costs or other effects for fear of disclosing their competitive
positions.

Circular A-4 states that agencies should quantify and monetize regulatory benefits and
costs “whenever possible.” When effects cannot be quantified, the circular says agencies
should present any relevant quantitative information, and should “provide a discussion of
the strengths and limitations of the qualitative information,” including information on the
“key reason(s) why they cannot be quantified.” If unquantified benefits or costs affect a
policy choice, the circular says that agencies should
provide a clear explanation of the rationale behind the choice. Such an explanation could
include detailed information on the nature, timing, likelihood, location, and distribution
of the unquantified benefits and costs. Also, please include a summary table that lists all
the unquantified benefits and costs, and use your professional judgment to highlight (e.g.,
with categories or rank ordering) those that you believe are most important (e.g., by
considering factors such as the degree of certainty, expected magnitude, and reversibility
of effects).

OMB has recognized these kinds of “significant limitations” quantifying and monetizing
benefits and costs on Cabinet departments and independent agencies in its annual reports
to Congress on the costs and benefits of regulations. For example, in the 2011 report,
OMB said:
When agencies subject to Executive Orders 13563 and 12866 have not quantified or
monetized the benefits or costs of regulations, or have not quantified or monetized
important variables, it is because of an absence of relevant information. Many rules have
benefits or costs that cannot be quantified or monetized in light of existing information,
and the aggregate estimates presented here do not capture those non-monetized benefits
and costs. In fulfilling their statutory mandates, agencies must often act in the face of
substantial uncertainty about the likely consequences. In some cases, quantification of
various effects is highly speculative. For example, it may not be possible to quantify the
benefits of certain disclosure requirements, simply because the impact of some such

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requirements cannot be specified in advance. In other cases, monetization of particular
categories of benefits (such as ecological benefits and homeland security benefits) can
present significant challenges. As Executive Order 13563 recognizes, some rules
produce benefits (such as reductions in discrimination on the basis of disability or
prevention of rape) that cannot be easily or adequately captured in monetary
equivalents.390

In the absence of empirical information about future costs and benefits, though,
regulatory agencies can make informed estimates of how regulated entities will respond,
and be transparent about their assumptions and how those estimates were derived.
Agencies can also use other types of analysis. For example, when benefits are difficult to
quantify, OMB recommends that agencies use “breakeven analysis” to show how high
the unquantified or unmonetized benefits would have to be in order for the benefits to
justify the costs.391 Circular A-4 states that cost-effectiveness analysis can help the
agency “identify options that achieve the most effective use of the resources available
without requiring monetization of all of relevant benefits or costs.”
Recommendation: Independent regulatory agencies should quantify and monetize
regulatory costs and benefits whenever possible. If costs or benefits cannot be quantified
or monetized, agencies should explain why and take other actions to promote
understanding of regulatory decision making (e.g., cost-effectiveness analysis or
breakeven analysis).

c)

Transparency and Reproducibility

Circular A-4 also indicates that regulatory analyses should be transparent and
reproducible, with agencies disclosing how they prepared the economic analyses,
underlying assumptions, uncertainties associated with the estimates, why certain
approaches were used, and agencies’ efforts to obtain data. As a result of such
disclosures, the circular states that a “qualified third party reading the analysis should be
able to understand the basic elements of your analysis and the way in which you
developed your estimates.” It goes on to say that agencies should generally post the
analysis and supporting documents on the internet so the public can review the findings,
and should disclose the use of outside consultants. If “compelling interests” (e.g., privacy,
intellectual property, or trade secrets) prevent the public release of data or key elements
of the analysis, the circular says that agencies “should apply especially rigorous
robustness checks to analytic results and document the analytical checks used.” 392
390

See OMB’s 2011 report on regulatory costs and benefits, p. 4, available at
http://www.whitehouse.gov/sites/default/files/omb/inforeg/2011_cb/2011_cba_report.pdf.
391
Ibid., p. 5.
392
See also Memorandum for the President's Management Council, increasing Openness in the Rulemaking ProcessImproving Electronic Dockets (May 28,2010),
http://www.whitehouse.gov/sites/default/files/omb/assets/inforeg/edocket_final_5-28-2010.pdf, which states, “To the
extent feasible, and consistent with applicable laws, regulations, and policies, agencies should make their electronic
regulatory dockets on Regulations.gov consistent with their paper-based dockets. Both dockets should provide the
public with access to all relevant materials. To the extent that they are part of a rulemaking, supporting materials (such
as notices, significant guidances, environmental impact statements, regulatory impact analyses, and information

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In addition, FCC officials said a “best practice” might be including the analysis as part of
the notice of proposed rulemaking, thereby getting all of the stakeholders involved in the
process, which gives the agency more information on which to base its judgments. In
FCC rules, they said the analysis is marbled through the different sections of the NPRM,
not in a separate “cost-benefit analysis” section. They said the agency asks the public for
information relevant to those analyses, along with their underlying assumptions, so they
can replicate that information.
Recommendation: Independent regulatory agencies’ regulatory analyses should be as
transparent and reproducible as possible. In particular, agencies should disclose how the
analyses were conducted, post the analyses on the internet, and summarize the methods
and results in the notice of proposed rulemaking.

d)

Summarizing the Results

OMB Circular A-4 requires agencies to include in their rules “an accounting statement
with tables reporting benefit and cost estimates for each major final rule for your
agency.” The circular suggested that agencies report benefit and cost estimates within
three mutually exclusive categories: monetized; quantified but not monetized; and
qualitative but not quantified or monetized. Transfers should be reported separately to
“avoid the misclassification of transfer payments as benefits or costs.”
Rules that include such accounting statements summarizing the agency’s analysis of costs
and benefits are generally much easier for the public to read than rules that contain
voluminous discussions of costs and benefits, but no summary information. This is
particularly true when the agency also discusses other considerations in the rule (e.g.,
effects on competition, price discovery, and capital formation), sometimes for multiple
individual parts of the rule. The author’s review of the 22 major rules published by
independent regulatory agencies during FY2012 indicated that many agencies’
discussions of costs and benefits sometimes went on for dozens of pages in the Federal
Register, and frequently did not contain any type of executive summary or accounting
statement. Such lengthy (and often qualitative) discussions make it difficult for readers
to discern for themselves whether the benefits of the rule “justify” the costs.
Recommendation: Independent regulatory agencies should include in the notice of
proposed rulemaking and in the final rule a summary statement or table concisely
showing the agencies’ overall estimates of costs, benefits, and transfer payments.

collections) should be made available by agencies during the notice-and-comment period by being uploaded and posted
as part of the electronic docket.”

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2.

Other Possible “Best Practices”

In addition to the “best practices” delineated in Circular A-4, this research indicated
several other practices that independent regulatory agencies might want to consider –
having agency-specific written guidance on economic analysis, making analysis part of
early rule development, and tapping into the expertise of other agencies and OIRA.
a)

Agency-Specific Written Guidance

Agencies may also want to consider whether to have agency-specific written policies and
procedures to guide agency staff in determining whether particular rules should contain
an economic analysis, and if so, how that analysis should be conducted. Agency officials
interviewed for this report differed somewhat on whether having an agency-specific
guidance document was necessary. SEC officials thought it was, saying a document like
the March 2012 memorandum puts all of the agency’s “best practices” in one place. In
addition to establishing a standard process, they said a guidance document provides a
“common language” about these issues, and helps ensure that everyone is approaching
issues like the baseline the same way. CPSC officials, however, said they follow the
general principles in Circular A-4, and did not know what an agency-specific guidance
document would add. (They said there had been discussions about having agencyspecific guidance, but the agency has never decided to do it.) They also said, however,
that the need for an agency-specific document might be less at CPSC than other
independent regulatory agencies (e.g., the financial agencies) in that that their rules are
about consumer products, and are therefore, more akin to other health and safety agencies
already covered by Circular A-4.
Several of the June 2011 inspector general reports on Dodd-Frank Act rulemaking noted
the absence of up-to-date agency-specific analytical guidance. For example, the
Department of the Treasury OIG said the Comptroller of the Currency’s rulemaking
procedures contained no documented process for the preparation, review, and approval of
economic analyses in support of rulemaking. The OIG for the Federal Reserve Board
said the agency’s rulemaking procedures had not been updated and no rulemaking team
members cited the document.
Recommendation: Each independent regulatory agency should consider developing
written economic analysis guidance tailored to its particular statutory and regulatory
environment. That guidance should represent the agency’s “best practices,” and can
help ensure that the agency’s analyses are consistently conducted.

b)

Making Analysis Part of Rule Development

Several of the independent regulatory agencies indicated that a “best practice” was to
make regulatory analysis an early part of the rule development process. For example,
both SEC and FCC officials said economists are part of the rulemaking process from the
earliest stages of rule development. The CFTC Chief Economist said that economists
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work with line staff early in the process, asking questions about costs, benefits and
alternatives. He described the analysis as an “ongoing thought process,” and said there
are weekly meetings where information is shared across rule writing teams.
When analysis is done early in the rulemaking process, the agencies often indicated that
the analysis was more likely to have an effect on agency decision making and on the
substance of the final rule. For example, NRC officials said early “back-of-the-envelope”
analyses help the agency decide whether to go forward with a rule. Later in the process,
agency positions may “harden,” making it less likely that the analysis will have an effect.
Nevertheless, none of the agencies indicated that the analyses that they perform were
done to justify decisions that were already made.
Recommendation: To help ensure that regulatory analysis is used in decision making,
independent regulatory agencies should make the analysis an early part of rule
development.

c)

Using the Expertise of Others

Independent regulatory agencies could also attempt to obtain additional expertise
regarding cost-benefit and economic analysis from other agencies, or from OIRA.
Several of the agencies indicated that they often consult with other agencies to gain
analytical insights, particularly from agencies that are issuing similar types of rules.
CFTC officials described this as “crowd sourcing,” and said it can allow for broader
consideration of issues and a wider range of ideas and perspectives.
ACUS created the Council of Independent Regulatory Agencies (CIRA) in 1982 as a way
to share information on issues unique to such agencies, and it now meets on a bi-monthly
basis.393 CIRA could provide the platform through which agencies share information on
how to prepare cost-benefit and other types of economic analyses generally, or with
regard to particular types of rules (e.g., under the Dodd-Frank Act). SEC officials told
the author of this report that some such discussions already occur at CIRA meetings, and
agreed that formalization of those discussions could be considered a “best practice.”
Independent regulatory agencies might also find it useful to consult with OIRA regarding
cost-benefit analysis issues. As noted earlier in this report, in May 2012, CFTC entered
into a memorandum of understanding with OIRA permitting OIRA staff to provide
technical assistance to the agency’s staff during the implementation of the Dodd-Frank
Act, “particularly with respect to the consideration of the costs and benefits of proposed
and final rules.”394 The agreement was later referenced in a House Appropriations

393

See http://www.archive.org/stream/gov.acus.1982.cira/gov.acus.1982.cira_djvu.txt for the CIRA statement of
policy.
394
A copy of the MOU is available from the author. It was discussed in Jimila Trindle, “CFTC Taps Help for Cost
Analysis on New Rules,” Wall Street Journal Online, May 10, 2012, available at
http://online.wsj.com/article/SB10001424052702304070304577396192653277890.html.

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Committee report,395 which said the Committee was “encouraged” by the MOU, and
directed the Commission to receive OIRA technical assistance “on all future
rulemakings.” In July 2012, as part of a meeting to consider two final rules and one
proposed rule, CFTC Commissioner Scott O’Malia said the three rules were “the first to
benefit from our recently signed memorandum of understanding” with OIRA, and said
the rules had “benefited both from OMB’s technical assistance and from the
Commission’s commitment to putting forth rules that utilize appropriate baselines,
include replicable quantitative analysis (when possible), and reflect the consideration of a
range of policy alternatives. I look forward to the continuing coordination between OMB
and the Commission to further improving our cost benefit analysis.”396
CFTC officials told the author of this report that the Commission decided to reach out to
OIRA because of the experience and expertise in economic analysis that resides there.
They also said that having “another set of eyes” examine some of the complicated rules
that the agency was developing could only improve the analysis. They said Commission
staff meets with OIRA staff to discuss their suggestions and recommendations, and that
OIRA has been a useful “sounding board” by suggesting elaborations of certain issues
and alternative approaches.
Other independent regulatory agencies may also find it useful to use OIRA as a
“sounding board,” but may want to include the same type of independence provisions that
are in the CFTC memorandum (i.e., that the agreement does not alter the relationship
between OIRA and the agency during the rulemaking process, and that sharing of
documents does not constitute submission of the documents to OIRA for review). SEC
officials said they have also spoken with OIRA about establishing an MOU with the
agency, but no final decision has been made.
Recommendation: When additional analytical expertise or experience is needed,
independent regulatory agencies should consult with other agencies (e.g., through the
Council of Independent Regulatory Agencies) and/or with OIRA (perhaps using
memoranda of understanding to document the nature of the relationship).
3.

Other Considerations

Finally, two other considerations bear mentioning in the context of improving agencies’
ability to prepare sound economic analyses – expedited PRA reviews and possible
additional funding to allow agencies to prepare such studies.

395

Available at http://www.gpo.gov/fdsys/pkg/CRPT-112hrpt542/pdf/CRPT-112hrpt542.pdf.
Comments by Commissioner Scott D. O’Malia at “Twenty-Eighth Commission Meeting to Consider: (1) Two Final
Rules Providing an Exemption from the Clearing Requirement for End-Users and Further Defining Certain Product
Definitions under Title VII of the Dodd-Frank Act; and (2) One Proposed Rule Providing Relief for Certain
Cooperatives from the Clearing Requirement,” July 10, 2012, available at
http://www.cftc.gov/PressRoom/SpeechesTestimony/omaliastatement071012.
396

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a)

Expedited PRA review

Officials from several of the agencies interviewed for this report indicated that the
Paperwork Reduction Act sometimes made it difficult for them to gather the data needed
to estimate the costs and benefits of forthcoming rules. For example, an FCC official
described the PRA as a “major impediment” to gathering data they need in analysis. SEC
and CFTC officials said the PRA made it more difficult for the agency to gather cost
information, as they have to go through the sometimes-lengthy analytical and comment
process as input for a related economic analysis.
The PRA does provide for “emergency” or “fast-track” OIRA reviews in certain
situations.397 Specifically, an agency may request that OIRA authorize a collection of
information upon the agency head’s determination that:
(A) a collection of information- (i) is needed prior to the expiration of time periods
established ... ; and (ii) is essential to the mission of the agency; and
(B) the agency cannot reasonably comply with the provisions of [the PRA] because—(i)
public harm is reasonably likely to result if normal clearance procedures are followed; (ii)
an unanticipated event has occurred; or (iii) the use of normal clearance procedures is
reasonably likely to prevent or disrupt the collection of information or is reasonably
likely to cause a statutory or court ordered deadline to be missed. 398

Once the agency head requests an expedited authorization, the act requires OIRA to
“approve or disapprove any such authorization request within the time requested by the
agency head and, if approved, shall assign the collection of information a control
number.”399 If the agency head made such an authorization request of OIRA, he or she
could then also specify a short time frame for OIRA to approve such a request, and
conduct the collection of information “without compliance with the provisions of [the
PRA] for a maximum of 180 days after the date on which the Director received the
request to authorize such collection.”400 OIRA would not need to provide 30 days of
public comment prior to an approval or disapproval decision within the agency headspecified timeframe regarding the collection of information authorization request.401 Nor
would the agency head need to provide a 60-day notice in the Federal Register soliciting
public comment.402

397

For more information, see OMB’s PRA primer, p. 4, available at
http://www.whitehouse.gov/sites/default/files/omb/assets/inforeg/PRAPrimer_04072010.pdf.
398
44 U.S.C. § 3507(j)(1); see also 5 C.F.R. § 1320.13.
399
44 U.S.C. § 3507(j)(2).
400
Ibid.
401
44 U.S.C. § 3507(b). Section 3507(b) states: “The Director shall provide at least 30 days for public comment prior
to making a decision under subsection (c), (d), or (h), except as provided under subsection (j).” Subsection (c)
addresses proposed collections of information not contained in a proposed rule.
402
44 U.S.C. § 3506(c)(2)(A). Section 3506(c)(2)(A) states: “With respect to the collection of information and the
control of paperwork, each agency shall ... except as provided under ... section 3507(j), provide 60-day notice in the
Federal Register, and otherwise consult with members of the public and affected agencies concerning each proposed
collection of information, to solicit comment.”

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Also, in a May 28, 2010, memorandum to agency heads (including independent
regulatory agencies), the OIRA Administrator encouraged agencies to use “generic
clearances,” which were described as providing “a significantly streamlined process by
which agencies may obtain OMB’s approval for particular information collections.”403
Most such clearances “cover collections that are voluntary, low-burden (based on a
consideration of total burden, total respondents, or burden per respondent), and
uncontroversial.”
Some expedited or generic approvals appear to have been used with regard to the
collection of information related to independent regulatory agencies’ economic analyses.
For example, an FCC official told the author of this report that the Obama Administration
had made “significant efforts” to minimize PRA-related hurdles, allowing the agency to
obtain streamlined PRA approvals for certain information collections. Other agencies
may be able to obtain similar kinds of treatment if the heads of those agencies were to
request expedited approvals for data collections needed to complete analyses in the face
of statutory or judicial deadlines for rule issuance.
In June 2012, ACUS recommended that agencies “should use all available processes for
OMB approval for information gathering,” including “OMB’s available generic
clearances and fast track procedures.”404 The recommendation went on to say that “OMB
is encouraged to continue using its generic clearance authority for this and other
purposes, as appropriate and permitted by law.” Therefore, the following
recommendation should be viewed as complementary to and an extension of the June
2012 ACUS recommendation.
Recommendation: Independent regulatory agencies and OIRA should use whatever
flexibilities exist within the Paperwork Reduction Act to expedite the collection of
information needed in agencies’ economic analyses.

b)

Funding

This report takes no position on whether legislation should be enacted, or executive
orders should be issued, requiring independent regulatory agencies to prepare cost-benefit
analyses before issuing proposed or final rules. However, any such effort should
recognize that while regulatory analysis may result in certain benefits (e.g., rules with
higher benefits, less cost, or both), analysis also carries with it certain costs, both in terms
of money and in the time required to issue the rule. Ironically, therefore, any requirement
for cost-benefit analysis should itself be subjected to a type of cost-benefit analysis to
determine whether the marginal benefits derived from the effort justify those costs.
Various studies during the past 30 years have provided information on the costs of doing
cost-benefit and other types of regulatory impact analyses (RIAs). These studies indicate
403

See http://www.whitehouse.gov/sites/default/files/omb/assets/inforeg/PRA_Gen_ICRs_5-28-2010.pdf.
ACUS Recommendation 2012-4, “Paperwork Reduction Act,” p. 5, available at http://www.acus.gov/wpcontent/uploads/downloads/2012/06/Final-Recommendation-2012-4-Paperwork-Reduction-Act.pdf.
404

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that (1) just as there is no such thing as a “typical” rule, there is no “typical” cost-benefit
or other type of analytic study; (2) federal agencies may not have systematic data on
analytic costs; and (3) preparing an RIA can be expensive and time consuming for an
agency.


A 1982 GAO study examined the costs of 38 RIAs conducted in 1981 by eight
agencies, including EPA, the National Highway Traffic Safety Administration,
and the Coast Guard.405 GAO reported that the cost of these studies averaged
$212,000 ($539,000 in 2012 dollars),406 with costs ranging from $34,000 to
$1.2 million ($87,000 to $3.1 million in 2012 dollars). GAO noted that these
costs did not include expenses for gathering data, and that the RIAs focused
primarily on estimating ex ante costs rather than both costs and benefits.
GAO also said that it was “concerned that the high costs of analysis and the
shrinking budgets of several regulatory agencies will leave them with
inadequate resources. If the agencies lack adequate resources, the quality of
the analyses may fail to improve, and the regulatory analysis requirement
may fail in its objective of improving agency rulemaking.”407



In 1984, GAO reported that a 1983 cost-benefit analysis of regulations setting
air-quality standards cost $1.8 million in contractor expenses and 12.3 staff
years to complete, for a total of about $2.4 million ($5.6 million in 2012
dollars). 408



Also in 1984, Paul Portney estimated the average cost of a regulatory impact
analysis at about $400,000 ($891,000 in 2012 dollars), including the costs
associated with agency personnel supervising the analysis, staff from OMB
who review the analysis, and interagency groups needed to mediate disputes
between OMB and other agencies.409



In 1987, EPA published a study of 15 RIAs that had been conducted between
1981 and 1986.410 Of the 12 analyses with cost data, the average cost was
about $675,000 ($1.37 million in 2012 dollars), with actual costs ranging
from $212,000 to $2.3 million ($432,000 to $4.7 million in 2012 dollars).
EPA also said that the total costs of these RIAs was about $10 million, but

405

U.S. General Accounting Office, Improved Quality, Adequate Resources, and Consistent Oversight Needed If
Regulatory Analysis Is to Help Control Regulations, GAO/PAD-83-6, November 2, 1982.
406
All adjustments to 2012 dollars were made using the Bureau of Labor Statistics CPI Inflation Calculator, available
at http://www.bls.gov/data/inflation_calculator.htm.
407
GAO/PAD-83-6, p. 3.
408
U.S. General Accounting Office, Cost-Benefit Analysis Can Be Useful in Assessing Environmental Regulations
Despite Limitations, GAO/RCED-84-62, April 6, 1984.
409
Paul R. Portney, “The Benefits and Costs of Regulatory Analysis,” in V. Kerry Smith, ed., Environmental Policy
Under Reagan’s Executive Order: The Role of Cost-Benefit Analysis (Chapel Hill: University of North Carolina Press,
1984), pp. 229-231.
410
U.S, Environmental Protection Agency, Office of Policy Analysis, EPA's Use of Benefit-Cost Analysis 1981-1987,
August 1987.

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said this cost was small compared to the estimated $10 billion in
improvements expected from the rules.


In 1995, EPA estimated that it spent about $120 million per year ($182
million in 2012 dollars) performing the required risk assessments and costbenefit analyses.411 Of that total, EPA said that $55 million paid the salaries of
690 agency staff members, and the remaining $65 million went to
contractors.



In 1996, GAO reported that the 27 RIAs that EPA issued after the enactment
of the Clean Air Act Amendments of 1990 cost an average of $480,000
($708,000 in 2012 dollars), with the cost of individual studies ranging from
$46,000 to $3.8 million ($68,000 to $5.6 million in 2012 dollars). 412 GAO also
reported that EPA did not have a systematic way to track RIA costs. Only two
of four EPA program offices within the Office of Air and Radiation were able
to identify and report contract costs for the RIAs, and none of the offices
were able to provide reliable data on in-house costs.



In 1997, the Congressional Budget Office (CBO) issued a report on the costs
of 85 regulatory impact analyses (RIAs) from six offices in four agencies –
EPA, the Coast Guard, the Federal Aviation Administration, and the National
Highway Traffic Safety Administration. 413 The average cost per RIA was
about $570,000 ($815,000 in 2012 dollars), with a range of $14,000 to more
than $6 million per analysis ($20,000 to $8.6 million in 2012 dollars). CBO
said that the average amount of time to complete the studies was 3 years, but
the individual analyses ranged from 6 weeks to 12 years.

Requiring independent regulatory agencies to prepare additional analyses would likely
require additional agency staff and other resources, which in some cases could ultimately
be passed on to regulated entities.414 For example, in its cost estimate for H.R. 373 (the
Unfunded Mandates Information and Transparency Act of 2011), CBO said the new
analytical requirements placed on independent regulatory agencies “would require
additional resources to carry out.” Specifically, CBO estimated that
at least 12 independent regulatory agencies would face an increased workload and would
eventually incur costs of $1 million annually. We expect that it would take two years to
reach that level of effort, resulting in gross costs of $43 million over the 2013-2022
period. Under current law, four of those agencies, the Federal Energy Regulatory
Commission, the Federal Communications Commission, the Nuclear Regulatory
Commission, and the Securities and Exchange Commission, are authorized to collect fees

411

Letter from the Environmental Protection Agency, Office of Policy, Planning and Evaluation, to Congressman
Cardiss Collins, House committee on Reform and Oversight, May 17, 1995.
412
U.S. General Accounting Office, EPA’s Costs of Preparing Regulatory Impact Analyses, GAO/RCED-97-15R,
December 6, 1996, available at http://archive.gao.gov/paprpdf1/157946.pdf.
413
U.S. Congressional Budget Office, Regulatory Impact Analysis: Costs at Selected Agencies and Implications for the
Legislative Process, March 1997, available at http://www.cbo.gov/doc.cfm?index=4015&type=0.
414
See http://www.cbo.gov/sites/default/files/cbofiles/attachments/hr373.pdf.

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sufficient to offset their appropriation each year. CBO assumes that future appropriations
would direct agencies to exercise that authority. Thus, CBO estimates that implementing
the bill would have a net discretionary cost of $1 million in 2014 and $9 million over the
2013-2022 period, subject to the availability of appropriated funds.

In its cost estimate for H.R. 2308 (the SEC Regulatory Accountability Act), CBO
estimated that the SEC “would need 20 additional staff positions to handle the new
rulemaking, reporting, and analytical activities required under the bill,” and
implementing the legislation would cost the agency “$22 million over the 2013-2017
period, assuming appropriation of the necessary amounts, for additional personnel and
overhead expenses.”415 Assuming that fees collected by the Commission would increase
as a result of these costs, CBO also said that the bill “would increase the costs of existing
mandates on private entities required to pay those fees.” Similarly, in its cost estimate for
H.R. 1840, CBO estimated that CFTC “would need an additional 25 positions to handle
the increased workload under the bill. CBO estimates that implementing H.R. 1840
would cost $27 million over the 2013–2017 period, assuming appropriation of the
necessary amounts.”416
CFTC officials would not discuss whether CBO’s estimate regarding H.R. 1840 was
correct, or any aspects of pending legislation. SEC officials said they could not say
whether the CBO estimate regarding H.R. 2308 was correct or not, or whether fee
collections would increase as a result of the increased costs. However, they said it is fair
to say that if the agency was required to do more analyses, it would require either more
resources, or the agency would have to cut back on certain current activities. In
particular, they said quantifying costs and benefits to the degree contemplated in OMB
Circular A-4 could be resource intensive, and could require the agency to draw resources
away from other analyses that the agency believes are more important.
NRC officials said that although the agency’s current analysis guidelines generally reflect
Circular A-4, strict application of the circular to the agency’s few major rules would
likely require more resources, and significantly more work. CPSC officials said the
agency has only eight economists and five attorneys, and said strict application of
Circular A-4 to all of their rules (including rules promulgated under the Consumer
Product Safety Improvement Act) could have a major effect, and would likely require
added resources. However, they said application of the circular’s requirements to only
major rules (as Circular A-4 currently applies) would not have as much of an effect,
because the agency does not issue that many major rules.
Even those who have been critical of independent regulatory agencies’ current analytical
efforts have supported additional funding for these efforts. For example, in its letter to
the Senate and House banking committees, CCMR said it recognized that more thorough
cost-benefit analysis might require additional agency resources (e.g., to obtain data, hire
economists, or engage third-party analysts), and said “we fully support the necessary
funding.”
415
416

See http://www.cbo.gov/sites/default/files/cbofiles/attachments/hr2308.pdf.
See http://cbo.gov/sites/default/files/cbofiles/attachments/hr1840.pdf.

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Recommendation: To the extent that independent regulatory agencies are required to do
more economic analyses of their proposed and final rules, additional funding for those
analyses should be provided.

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