Main Content

Structural Limitations and Activity Restrictions

Financial regulations should not protect people from business or financial risk that they knowingly choose to accept. Reform should start from this principle: Firms that absorb more of their own losses do not need to be heavily regulated.

By Norbert Michel

For at least a century, the U.S. regulatory framework has increasingly hindered the financial intermediation process, particularly in the banking industry. The current regulatory regime is counterproductive for many reasons, including the fact that there are too many regulators with redundant authority. Unlike non-financial companies, banks endure countless activity restrictions that substitute regulators’ judgments for those of owners and managers. These restrictions are justified as necessary to protect taxpayers, but they undermine that purpose by creating a false sense of security and increasing moral hazard.

These restrictions thus feed into a self-reinforcing cycle in which policymakers expand the scope of losses that U.S. taxpayers absorb as well as the size and scope of restrictions that banks face. Fixing this framework requires rolling back both government regulations and taxpayer backing of financial losses, making it possible for private citizens to build a stronger financial system that efficiently directs capital to its most-valued uses. This article provides an overview of where banking regulation has gone wrong, what a better approach would look like, and what type of reforms are most likely to occur in the near future.

Recent Regulatory Changes Should Not Bolster Confidence
History provides more than enough evidence that policymakers have been playing a whack-a-mole game with bank safety and soundness. As government interventions – particularly central banking, deposit insurance, and loan guarantees – became more widespread internationally, banking crises have occurred relatively more frequently. Perhaps surprisingly, the U.S. has had one of the worst experiences, with 15 banking crises since 1837. This total ranks among the highest of all developed countries, and the U.S. is one of only three developed nations that experienced at least two banking crises between 1970 and 2010. While the Federal Reserve was created (in 1913) specifically to stem crises and the resulting spillovers to the broader economy, it has clearly failed to fulfill that promise.

Multiple U.S. financial regulators implemented stringent regulations and price controls in response to the Great Depression, but these rules imploded when high inflation exposed their weaknesses in the 1970s. After the Basel I rules were implemented in the late 1980s, regulators developed their supposedly superior version, the Basel II rules. While these new rules were being implemented in several countries, the 2008 financial crisis hit, causing regulators to get to work on Basel III before Basel II could be fully implemented. Now, regulators are finalizing the Basel III rules and making the same promises as before – that banks are now safer and stronger because of the new rules. Even a cursory look at what regulators said prior to the implosion of earlier frameworks raises serious doubt about how much faith people should place in the new rules.

Though many pundits blame previous crises on deregulation and a lack of rules, banks have been subject to extensive restrictions on their activities, capital, and asset composition for decades.

In 2007, New York Federal Reserve President Timothy Geithner praised “the depth and liquidity of our world-class financial markets and a record of stability in macroeconomic policy.” He also praised global regulators and noted, “Financial markets outside the United States are now deeper and more liquid than they used to be, making it easier for companies to raise capital domestically at reasonable cost.” In hindsight, Geithner surely held a different view, but his speech is eerily similar to the 1984 congressional testimony of Comptroller Todd Conover. In both cases, a high-ranking federal regulator effectively assured the public that the financial system was on solid footing due to stronger capital. On page 219 of the committee report, Conover appeals directly to the benefits of higher capital requirements:

Under regulations proposed by the OCC and the FDIC, all banks, regardless of size, would be required to maintain a minimum ratio of primary capital to total assets of 5.5 percent. The implementation of this regulation will require over 200 national banks to raise a total of over $5 billion in new capital. The Federal Reserve has proposed similar guidelines on capital.

Stricter regulatory capital requirements will strengthen the trend towards stronger capitalization of the nation’s largest banks. For example, in the first quarter of 1984 the average ratio of primary capital to total assets stood at 5.67 percent for the holding companies of the 11 multinational banks supervised by the OCC. This is almost 16 percent higher than the average level at those banks two years ago.

There is no doubt that higher equity funding enables banks to better absorb losses, if all else remains constant. But even without the caveat, it does not follow that forcing banks to meet higher equity ratios is a good policy solution for improving safety and soundness. Regulatory capital requirements are arbitrarily designed based on losses in previous financial crises, and their engineers simply cannot know for certain what problems will unfold in the future or how large losses will be. Proponents of the latest round of Basel rules and the systemic regulations in the Dodd-Frank Act insist that this time will be different, because now the rules are focused on systemic problems, whereas previously they were concerned with individual banks. This concept has been grossly oversold, as systemic problems were contemplated by previous iterations of the Basel rules.

Indeed, the subheading of Conover’s 1984 testimony was “The Supervisor’s Role is to Maintain Systemic Soundness.” He also provided the following specific examples:

Our supervision of banks of all sizes has been enhanced by the establishment of an Industry Review Program. This program includes a computerized information system to collect data on industry concentrations in individual bank portfolios and the banking system as a whole.

In addition to the more frequent examinations we have undertaken, the examiners will also monitor trends and developments in the banks between examinations. This new approach results in near-constant supervision of each of our large banks.

We are now better able to identify and devote attention to items of supervisory concern in individual large banks and significant practices emerging in the large bank population as a whole.

Conover’s testimony is far from an isolated incident. For instance, systemic-risk concerns were discussed by a Fed Governor’s testimony before the House Subcommittee on Economic Stabilization in 1991, just after the Basel I accords were implemented. In 1996, the Fed explicitly accounted for system-wide risk in its bank supervisory rating system. Prior to the change, the Fed used a CAMEL rating, but it converted to a CAMELS rating, where the “S” stood for “sensitivity to market risk.” It may be comforting to think that the new rules will keep banks safe and avoid future crises, but history suggests such hopes should be tempered.

Though many pundits blame previous crises on deregulation and a lack of rules, banks have been subject to extensive restrictions on their activities, capital, and asset composition for decades. Most often, these rules and regulations have created bad incentives and resulted in unintended consequences. Glass-Steagall restrictions, price controls, and stringent rules on real estate lending have all weakened banks’ balance sheets in the past, sometimes severely so. The risk-weighted Basel capital requirements are the latest example of such failures: regulators required lower capital charges against assets they blessed as safe, thus biasing the banking system toward more uniform balance sheets filled with those assets. In hindsight, of course, those risk assessments were wrong, and many banks held large amounts of what turned out to be very risky assets.

Rather than focusing on providing customers with the best possible service, banks have to worry about satisfying sociopolitical goals, even when pursuing such policies conflicts with sound banking practices.

For the most part, the new macro-prudential tools are nothing more than reworked versions of the same old liquidity and capital requirements. Though some of these tools are not as risk-based, they give regulators discretion to add extra layers of capital as they deem necessary. This approach is highly flawed for the same reasons that the earlier framework was defective. It assumes that regulators can design and mandate a safe financial system where banks still take financial risks, and it ignores that market participants have much stronger incentives – a profit-loss motive – than regulators to discipline inefficient and overly risky firms. Nonetheless, rules have continued to grow in number and complexity based on the notion that they will prevent systemic crises.

A Sample of Existing Regulations and Restrictions
Banks’ activities are highly regulated by both state and federal regulators, more so than most types of businesses. They face restrictions on capital, liquidity, mergers, acquisitions, and earnings distributions, among other activities. Regulators routinely examine banks’ records to ensure that they are following the rules, and sometimes use these examinations to implement changes to the rules. Banks tend to comply even with regulators’ informal suggestions because failure to do so can bring additional regulatory scrutiny or formal enforcement actions, and there is essentially no appeals process for this type of regulation by supervision.

Policymakers generally justify this extensive system of regulation as necessary to protect taxpayers, particularly from losses to the federal deposit insurance fund, but no part of the framework is ideal. This approach, though well intentioned, has demonstrably failed and has given rise to the too-big-to-fail problem. It also provides the public with a false sense of security because the government confers an aura of safety (during normal conditions) on all firms that play by the rules, and it prevents banks from evolving to meet the changing needs of customers.

Congress should fix the structural problems in the current system by creating one federal banking regulator and one capital markets regulator. This approach would improve efficiency and effectiveness.

This regulatory approach is bound to fail for at least three reasons: (1) People take on more risk than they would in the absence of such rules; (2) people have lower incentives to monitor financial risks than they would otherwise; and (3) compared to other actors in the market, regulators do not have superior knowledge of future risks. The logic driving this system – protecting people from the consequences of financial decisions – also creates an ever-expanding need for more government rules to replace market competition. Banks are now highly regulated and severely limited in the types of financial intermediation they can provide, thus further weakening the financial system.

In practice, as Congress and regulators expand the rules, banks end up in roles for which they are ill suited, such as policing money launderers and pursuing affordable housing goals. Rather than focusing on providing customers with the best possible service at the best possible price, banks have to worry about satisfying sociopolitical goals, even when pursuing such policies conflicts with sound banking practices. For all of these reasons, statutory and regulatory restrictions now go well beyond simple capital and liquidity ratios. The following list provides a brief overview:

  • All bank holding companies with assets of more than $50 billion are subject to heightened supervision by the Fed, as required by the Dodd-Frank Act. These special standards apply to banks’ leverage, liquidity, and capital requirements, as well as overall risk management and resolution processes.
  • Federal regulators now impose a wide array of risk-weighted minimum capital requirements, as well a liquidity coverage ratio, a net stable funding ratio, a supplementary leverage ratio, and a wide array of monitoring tools designed to monitor banks’ liquidity and risk profiles.
  • The Federal Reserve, as the primary regulator of all bank holding companies, regulates the “financial condition and operations, management, and intercompany relationships of the bank holding company and its subsidiaries, and related matters.”
  • Federal law limits how much money a bank can lend to any one customer or to a group of related customers, and banks are subject to lending limits (and other restrictions) on loans they can provide to insiders (such as officers, directors, and certain significant shareholders), as well as to affiliate institutions.
  • Regulation E covers rules for electronic funds transfers, Regulation C covers home mortgage disclosure rules, and Regulation Z (Truth in Lending) prescribes uniform rules for “computing the cost of credit, for disclosing credit terms, and for resolving errors on certain types of credit accounts.” (12 CFR 226)
  • Regulation BB implements the Community Reinvestment Act (CRA), a law that Congress passed in 1977 because politicians were unhappy with banks’ provisioning of credit, particularly with regard to low-income neighborhoods.
  • Banks are subject to the Equal Credit Opportunity Act, a 1974 law passed to promote adequate disclosure of information and to shield protected classes of consumers from discrimination when applying for credit. The law is now part of the framework used to prove disparate impact, whereby regulators can prohibit activities because of a disproportionately negative impact, even in the absence of intentional discrimination.
  • Banks are required to comply with complex anti-money laundering (AML) statutes and regulations, such as “know your customer” requirements primarily administered by the Treasury Department’s Financial Crimes Enforcement Network (FinCEN). These rules have effectively turned banks into quasi law enforcement agencies. Federal regulators also require financial institutions to institute formal compliance programs for the AML rules, and regulators heavily micromanage this process.
  • Section 619 of the Dodd-Frank Act imposed the Volcker rule, a restriction that prohibits banks from making certain risky investments (trades) solely for their own profit, a practice known as proprietary trading. This complex rule is one of the clearest examples of a government regulation that limits the types of financial intermediation banks can provide, thus further weakening the financial system.

In many of these (and other) cases, banks are subject to the compliance regimes of more than one federal regulator and even those imposed under state law. Thus, in practice, both state and federally chartered banks are subject to state laws governing the basic transactions in which they engage with their customers. The Uniform Commercial Code, for instance, governs (among other things) transactions in commercial paper and promissory notes, bank deposits, funds transfers, secured transactions, and contracts. While the Dodd-Frank Act did not create this problem, it certainly worsened it.

Dodd-Frank created a consumer watchdog agency for the financial industry, the CFPB, increased the responsibilities of several federal regulators, and included a new systemic-risk mandate for the Federal Reserve. Dodd-Frank also gave the Fed supervisory authority over other entities, such as savings-and-loan holding companies (which previously had been overseen by the OTS, which was eliminated by Dodd-Frank), securities holding companies, and systemically important financial institutions. To fix bank regulation and improve financial intermediation, Congress should reduce taxpayer backing of financial losses, pare back restrictions so that banks can expand their activities, and restructure the agencies that write and enforce regulations.

The Overabundance of Regulatory Agencies
The U.S. banking regulatory structure is overly complex, with responsibilities fragmented among many different federal and state regulators. The list of possible regulators at the federal level includes (but is not limited to): (1) the Federal Reserve, (2) the Federal Deposit Insurance Corporation (FDIC), (3) the Securities and Exchange Commission, (4) the Commodity Futures Trading Commission, (5) the Consumer Financial Protection Bureau, (6) the National Credit Union Administration (NCUA), and various agencies within the U.S. Treasury Department. Besides the Office of the Comptroller of the Currency (OCC), FinCEN and the Internal Revenue Service impose a wide variety of information-reporting and due-diligence requirements on financial institutions. Furthermore, Title I of Dodd-Frank created the Financial Stability Oversight Council (FSOC), a council that consists of the heads of many of the above-mentioned regulatory agencies, and tasked it with several broad responsibilities, including developing activity restrictions.

The FDIC has backup supervisory authority over all banks and thrifts that are federally insured, and this responsibility overlaps with supervisory authorities of the Federal Reserve and the OCC. The NCUA supervises only federally chartered credit unions, but it is the deposit insurer for both federal credit unions and most state-chartered credit unions, so its authorities overlap with state credit union regulators. The Fed has consolidated supervisory authority over most holding companies that own or control a bank or thrift and their subsidiaries, so it overlaps with the supervisory authority of banks’ primary federal regulators.

Coordination among agencies requires considerable effort that could be directed toward more productive activities, and the multiregulator approach has a long history of creating inefficiencies and inconsistencies in regulatory processes. There simply is no need for so many regulators, and the existing framework creates an uncertain operating environment for regulated entities and regulators. Some of the best-known historical examples of these inefficiencies and inconsistencies include the following:

  • Differences in examination scope, frequency, documentation, guidance, and rules among the FDIC, OCC, and the Fed
  • Inconsistent methods for assessing loan loss reserves
  • Inconsistent guidance and terminology for Bank Secrecy Act examinations and compliance
  • Inconsistencies with oversight and compliance of federal consumer financial protection laws (such as fair lending laws)
  • Duplication in the examinations of financial holding companies, despite the OCC’s and the Fed’s efforts to coordinate

Proponents of the multiregulator system argue that it allows regulators’ performance to be measured against the record of other regulators, and that it confines mistakes to limited jurisdictions. Similarly, they argue that competition among regulators reduces the likelihood that a given agency might refrain from raising too many objections about the entities they regulate. The problem with these arguments is that they assume a degree of competition and diversity between regulators that simply does not exist. Bank regulatory reforms should include major structural changes because there are too many federal banking regulators with too many overlapping authorities.

How Bank Regulation Should Be Reformed
Congress should fix the structural problems in the current system by creating one federal banking regulator and one capital markets regulator. This approach would improve efficiency and effectiveness while guarding against the dangers of having a single bank-centric super-regulator. It is critical that this realignment removes the Federal Reserve from financial regulation. As the U.S. central bank, the Federal Reserve’s primary role is monetary policy, which dictates that it should focus on providing system-wide liquidity. Allowing the same entity to exercise regulatory and monetary functions gives rise to unnecessary and potentially dangerous conflicts of interest, and the Fed’s regulatory and supervisory responsibilities are simply unnecessary for conducting monetary policy.

To create the single banking regulator, the OCC, FDIC, and NCUA should be merged. Then, the Fed’s regulatory responsibilities would be shifted to this merged entity. Merging the CFTC and the SEC would give the U.S. a single capital markets regulator, but other reforms would still be necessary. In particular, the CFPB should be dismantled. Consumer protection law predates Dodd-Frank, and there is absolutely no reason that state regulators, along with the Federal Trade Commission and the Department of Justice, cannot police financial markets to guard against fraud and criminal behavior.

Optimally, banking applications would no longer be approved based on a regulator’s assessment of the company’s risk profile, the owners’ ability to attract and maintain community support, or whether the agency believes the company can remain profitable. A good reform tool would be to provide an optional federal financial charter, with no chartering restrictions beyond ensuring the suitability of management and directors through standard background checks. This charter could provide an opt-out of countless activity restrictions in return for meeting a higher equity ratio and agreeing to a prohibition on receiving federal assistance.

Ultimately, to eliminate the need for activity restrictions, the federal safety net has to be pared back. Congress can provide more market discipline and move toward such a framework by lowering the amount of FDIC deposit insurance coverage to (at least) the pre-Dodd-Frank limit of $100,000 per account. Even lowering the value to the pre-1980 limit of $40,000 per account would insure a level nearly 10 times the average transaction-account balance of approximately $4,000. Congress should also amend the coverage limits so that they apply on a per-person basis and that they cover only retail deposit customers. (The optional charter approach should explicitly forbid the use of federal deposit insurance, as well as all forms of government loans and assistance.)

Activity restrictions could then be all but eliminated, and banks would be allowed to operate with relatively few regulatory requirements. Policymakers could easily justify jettisoning, for example, regulatory stress-testing and Basel capital and liquidity rules, and they should go so far as to eliminate the remaining sections of the Glass-Steagall Act so that banks can underwrite and deal in securities. Regardless of how far Congress moves in this direction, they should reform AML and Bank Secrecy Act (BSA) rules so that banks no longer serve law enforcement roles. At a bare minimum, Congress should streamline the AML/BSA reporting process and adjust the thresholds for inflation from $10,000 (where they were set in 1970) to $60,000. It makes little sense to criminalize the use of cash and to continue collecting millions of reports on lawful transactions.

Federal rules should focus on mitigating fraud and promoting disclosure of relevant information rather than narrowly defining and restricting the ways in which banks can employ capital. Policymakers should implement these types of reforms because they are the best way to introduce more market discipline into the system, and because they are the best way to allow financial intermediaries to evolve to meet changing customer needs. While this new approach does not guarantee a stable banking system and macroeconomy, neither does the extensive and overly complex web of federal rules and regulations. Both theory and evidence suggest that the banking system will perform better when banks’ capital suppliers face more market discipline. Laws that mandate disclosure and enhance enforcement through civil liability rules have a more positive impact than activity restrictions, and evidence suggests that this type of disclosure and private monitoring would work well even in the banking sector.

Reforms Most Likely to Be Enacted By the 115th Congress
In Washington, wholesale reforms of any type are much rarer than changes that mildly alter the status quo, and financial regulation is surely not the exception to this rule. So the near-term prospects of a complete transformation of bank regulation, such as the one described in the previous section, are quite dim. However, Chairman Jeb Hensarling’s Financial CHOICE Act, the only major reform bill to pass either chamber of Congress since the Dodd-Frank Act was enacted, does include several major improvements to the current system, including a capital off-ramp provision.

The CHOICE Act would convert the FSOC into an information-sharing working group, end systemically important financial institution designations, and repeal Title VIII of Dodd-Frank, which created a new framework for assessing the systemic risk associated with financial institutions and financial market utilities involved in clearing activities for financial transactions. It would replace Dodd-Frank’s orderly liquidation authority (OLA) with new bankruptcy code provisions, and replace the CFPB with an enforcement-only agency that looks nothing like the powerful rulemaking agency created by Title X of Dodd-Frank. The CHOICE Act would also make many other regulatory reforms, such as repeal the Volcker rule and make all financial regulatory agencies go through the regular appropriations process, thus increasing their accountability to Congress.

As of this writing, there is no Senate companion legislation to the CHOICE Act, but the Trump administration has signaled its willingness to replace large parts of the Dodd-Frank Act. Executive Order 13772, signed in February, made it official administration policy to regulate financial markets consistent with seven core principles. These principles are largely compatible with the ideas behind CHOICE Act reforms, suggesting the Trump administration would be agreeable to major financial regulatory improvements. Several of these principles are as follows:

  • Empower Americans to make independent financial decisions and informed choices in the marketplace, save for retirement, and build individual wealth
  • Prevent taxpayer-funded bailouts
  • Foster economic growth and vibrant financial markets through more rigorous regulatory impact analysis that addresses systemic risk and market failures, such as moral hazard and information asymmetry
  • Make regulation efficient, effective, and appropriately tailored
  • Restore public accountability within federal financial regulatory agencies and rationalize the federal financial regulatory framework.

In fulfillment of the executive order, Treasury has released a report on depository institution regulation, and it includes many specific ideas that are either in or consistent with those in the CHOICE Act. For instance, the report calls for making the CFPB’s director removable at will, eliminating the Bureau’s supervisory authority, funding the Bureau through the regular appropriations process, and subjecting it to Office of Management and Budget apportionment. These changes very closely mirror those that Title VII of the CHOICE Act makes to the Bureau.21

Though legislation that restructures the CFPB in this manner is unlikely to garner 60 votes in the Senate, it doesn’t have to because the Congressional Budget Office (CBO) scored this component of the CHOICE Act as providing budgetary savings. In fact, the CBO also reported that repealing Dodd-Frank’s OLA, as done in Title I of the CHOICE Act, would provide budgetary savings.22 Thus, a simple majority vote in the Senate during the budget reconciliation process would be enough to enact at least two major financial regulatory reforms. Naturally, the fact that a federal court has already ruled the CFPB’s structure unconstitutional adds pressure to adopt the CFPB changes put forth in CHOICE. (In May 2017, the Congressional Budget Office (CBO) reported that enacting the CHOICE Act would reduce federal deficits by $24.1 billion, and that the biggest budgetary savings would come from those provisions that repeal Dodd-Frank’s Orderly Liquidation Authority (OLA) and restructure the CFPB. Treasury has decided to release a separate report on OLA. As of this writing, the study is incomplete.)

Other aspects of the Treasury report are somewhat inconsistent with the principles driving reforms in the CHOICE Act, and are even partly at odds with the administration’s own core principles. For instance, the report states that “It is very important to better align the benefits arising from banks’ CRA investments with the interest and needs of the communities that they serve and to improve the current supervisory and regulatory framework for CRA.” This statement suggests the administration would not support eliminating the CRA, even though doing so would be more consistent with empowering Americans to make independent financial decisions.

Similarly, while the Treasury report offers support for the capital off-ramp approach in the CHOICE Act, it also calls for retaining “Explicit, appropriately risk-sensitive capital standards” and “Supervised stress testing tailored based on banking organizations’ complexity.” Risk-based capital and size-based exemptions do not fix the core problems with the existing system because they still substitute regulators’ arbitrary judgments for those of the market participants with the most at risk. These kinds of changes provide the wrong incentives for firms that want to grow, and at least two major U.S. banking crises have already originated with predominantly smaller financial institutions. Nonetheless, it is much easier to gain political support for tweaking the existing system in this manner, so these types of small adjustments are likely on the near-term horizon.

The Treasury report also recommends that Congress reduce fragmentation, overlap, and duplication from the financial regulatory framework and suggests that such reforms “could include consolidating regulators with similar missions and more clearly defining regulatory mandates.” Yet the report recommends broadening the FSOC’s statutory mandate so that it can play an increased role in coordinating regulation among the various agencies. If history is any guide, broadening the role of the FSOC in this manner will not improve the regulatory process, and consolidating the financial regulators would eliminate the need for the FSOC. As with other biases toward the status quo, consolidating regulatory agencies has always been politically problematic, while gently expanding the role of existing regulators is much easier to sell.

Overall, the report suggests that Treasury has done its best to support as many allies for reform as possible, which increases the likelihood that popular changes such as higher thresholds for supervisory stress testing, comprehensive capital analysis review, and single counterparty credit limits are in the near future. These types of reforms tend to garner more widespread support because they provide regulatory relief to smaller banks, but they represent tweaks to the current system rather than wholesale reforms. Because most major reforms will require congressional action, unless reform-minded conservatives make major gains in the midterm elections, the U.S. is more likely to enact these types of small changes rather than sweeping financial regulatory reforms. As of this writing, the two major reforms with the best chance of passing into law are the CFPB reforms and OLA repeal in the CHOICE Act.

Conclusion
For decades, U.S. financial regulation has failed because it micromanages people’s financial risk, substituting regulators’ judgments for those of the investing public. Government rules that profess to guarantee the safety of the banking system create a false sense of security, lower private incentives to monitor risk, increase institutions’ financial risk, and protect incumbent firms from new competitors. It is important to reverse these trends because competition in markets drives innovation, lowers prices, prevents excessive risk taking, and allows people to invest their savings in the best investment opportunities.

Financial regulation should not protect people from business or financial risk that they knowingly choose to accept. Instead, financial regulations should focus on punishing and deterring fraud and fostering the disclosure of information that is material to saving and investment decisions. It should start from the following principle: Firms that absorb more of their own losses do not need to be heavily regulated. A major shortcoming of the existing system is that it narrowly defines the activities that banks can perform, and restricts the ways in which they can employ capital, thus making it very difficult to evolve to meet changing customer needs. Wholesale reforms are needed to help strengthen the banking and financial system in the U.S., but implementing these reforms at once will be very difficult to accomplish given the current political environment.

About the Author:

Norbert Michel studies and writes about financial markets and monetary policy, including the reform of Fannie Mae and Freddie Mac. Working in Heritage’s Roe Institute for Economic Policy Studies, Michel also focuses on the best way to address difficulties at large financial companies (the "too big to fail" problem).

Before rejoining Heritage in 2013, Michel was a tenured professor at Nicholls State University’s College of Business, teaching finance, economics, and statistics at the AACSB-accredited school in Thibodaux, La. His earlier stint at Heritage was as a tax policy analyst in the think tank’s Center for Data Analysis from 2002 to 2005.

Michel holds a doctoral degree in financial economics from the University of New Orleans. He received his bachelor of business administration degree in finance and economics from Loyola University.