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SEC’s Chief Economist Sees Danger in Overregulating

The SEC’s chief economist, Mark Flannery, suggested in recent remarks that by taking a narrow view and regulating the risk out of banking, regulators may have made the economy as a whole less safe, according to the Wall Street Journal. Flannery argued that such action has pushed the risk from banks to the “shadow banking” system, and as a result, regulators now feel pushed to further action. However, regulating shadow banks means “there may be less room for further evasion (of regulations), but there is also less room for innovation.” Instead of charging ahead, he suggested that policy makers should consider “which regulation is going to be effective for the society and the economy as opposed for the immediate regulated entities.”