The White House on Monday nominated Randal Quarles, a fund manager and past Republican Treasury official, to the important post of Federal Reserve vice chairman of supervision. Quarles seems a natural choice for the Trump administration, which wants to scale back the financial regulation that the Obama administration put in place following the financial crisis.

The Trump administration seems poised to tackle the thorny issue of financial regulation. But is deregulating the financial sector worth pursuing?

The standard narrative of the 2007-2008 financial crisis runs something like this: Enabled by deregulation in the banking sector, banks loaded up on risky assets, including the now-infamous subprime mortgages, expecting rising housing prices to guarantee healthy returns. We know how that turned out. The moral of the story is that banks, if left to themselves, take on socially destructive levels of risk. When banks get in trouble, the whole economy feels it. Income falls, jobs are lost, and recovery is slow. Thus we need regulation to keep banks from engaging in these kinds of practices, for the good of society.

The problem is, this narrative is just wrong.

Let's focus on the flaws related to regulation. The narrative treats regulation as something constraining large banks. It makes earning profits harder for banks, and so banks should be opposed to it. But it turns out that big banks want to be regulated. It's not bad for their bottom line; it's good, because regulation frequently has the unintended consequence of stifling healthy market competition.

A regulation typically looks like this: If you want to do any business in this industry, you must follow XYZ rules. This is what economists call a fixed cost: It doesn't vary depending on how much the firm produces. What kinds of firms are best at absorbing fixed costs? Large, well-established ones. They have the deep pockets and large output to absorb more easily the costs of regulation.

Smaller firms, in contrast, find it much harder to cope. This is a standard finding in the economics of regulation. Big banks ask the government to regulate their industry, knowing it will be slightly costly for them, because they realize it will be much more costly for competitors.

Furthermore, there is a clear relationship between financial regulation and Too Big to Fail. Bank executives and their regulators come from similar backgrounds, and the regulators frequently consult bankers in writing their regulations. This political closeness makes it much more likely that a bank, when it gets itself in trouble, will receive a bailout.

Too Big to Fail has been de facto government policy at least since the 1984 Continental Illinois bank failure. Big banks know if they gamble by taking on excessive risk, they can count on the taxpayers to absorb any losses. If you were offered a heads-I-win-tails-you-lose gamble, wouldn't you jump at it? We can hardly fault banks for doing the same.

By stifling competition and making bailouts more likely, financial regulation makes the financial sector more fragile, not less. The best way to prevent financial mischief by banks is to send a clear signal that they will be forced to suffer the consequences of their reckless actions, and that they will not be protected from competition in the marketplace.

There's a huge distance between the goal of financial deregulation and achieving it responsibly. I don't know whether Quarles and the Trump administration are up to the task. But the economics are clear: Financial regulation does more harm than good, and it needs to be scaled back.

Alexander William Salter is an assistant business professor at Texas Tech University and a research fellow at TTU's Free Market Institute. Email: alexander.w.salter@ttu.edu

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