A recent paper, "From Independence to Politics in Financial Regulation," finds that new laws in many countries are shifting regulatory power away from independent agencies and to elected politicians. The paper analyzes this trend in fifteen jurisdictions, including the US and the UK, finding a marked increase in the influence of politicians over financial regulations. The article explains:
The collapse of institutions in diverse areas of financial activity, including investment banks, insurance companies, and thrifts, created a sense that independent regulators as a class had failed. Concerns about regulatory capture, combined with disillusionment with the markets’ potential to self-correct, further undermined confidence in past paradigms. Developments in financial markets attracted great interest from ordinary Americans, who over the last two decades have increasingly relied on the financial system for their pension savings, housing credit, and other investments. Politicians could not remain as distant from financial regulation as in the past.
The article argues that this transfer of regulatory authority to politicians may well endanger financial stability, as elected officials are under pressure from various groups and are subject to financial lobbying, particularly around election times. The authors conclude that as a result of this trend, the risk of a financial catastrophe may hinge on “considerations that have little to do with the health of the financial system.”
The paper can be found here.