Kimberly Krawiec has made a major contribution to the growing number of empirical studies that find that the notice and comment rulemaking process is systemically biased in favor of regulated firms. Professor Krawiec read all of the comments that were submitted in the rulemaking that led to the issuance of the Volcker rule—arguably the most important rule that has been issued to implement the Dodd-Frank Act—as well as all of the agency meeting logs that described the meetings that agency decision makers had with parties who were interested in the outcome of that proceeding.
Krawiec found that, while proponents of strict regulation of financial institutions dominated the comment process numerically, their comments were useless to decision makers. Proponents of strict regulation filed 7831 of the 8000 comments, but 7316 of those were identical brief form letters that provided no data or analysis that would be potentially useful to decision makers. The other 515 comments filed by proponents of strict regulation appeared to be drafted independently by individuals, but they too were worthless as potential aids to decision making. The comment that inspired the title of Krawiec’s article was typical of those comments: The commenter urged the agency to keep “big banks” from attempting to “screw joe the plummer,” with plumber misspelled.
By contrast, Krawiec found that the comments filed by financial institutions and their representatives were “lengthy and contain cogent arguments in support of a generally narrow interpretation of the Volcker rule’s scope of prohibited activity. Overall, they advance detailed legal arguments relying on numerous statutes and cases, reference the Dodd-Frank legislative history, and often contain thorough empirical data. Most are meticulously argued and carefully drafted.”
Krawiec found an even greater imbalance in the meetings with interested parties that preceded the issuance of the Notice of Proposed Rulemaking (NPR) that formally began the rulemaking proceeding. The agency meeting logs described 450 meetings to discuss the terms of the proposed rule that took place between agency decision makers and interested parties prior to the issuance of the NPR. Of those, only 31 were meetings with groups or organizations that favor strict regulation of financial institutions. The vast majority of the meetings—93.1%—were with financial institutions or their representatives.
Krawiec’s broad findings are consistent with those of the other scholars who have studied the notice and comment rulemaking process. They also fit well with the many books and articles in which Cynthia Farina has described her frustrating efforts to expand the scope of effective participation in rulemakings in her capacity as head of the Cornell eRulemaking Initiative. The pre-NPR part of the decision making process is far more important than the post-NPR part of the process. Both the pre and post-NPR parts of the process are powerfully biased in favor of regulated firms, but the pre-NPR part of the process is characterized by the most extreme forms of bias in favor of regulated firms.
The sources of the bias in favor of regulated firms in both the pre and post-NPR parts of the decision making process include most prominently: collective actions problems that invariably favor a small number of parties, each with a large amount at stake, in any dispute with a large number of parties, each with a small amount at stake, and many of the judicial decisions that force agencies to act in ways that favor regulated firms. Thus, for instance, the decisions that require agencies to issue NPRs that “adequately foreshadow” the terms of the final rule the agency issues have the effect of requiring the agency to make most important decisions during the pre-NPR part of the decision making process when regulated firms have a particularly powerful systemic advantage over proponents of strict regulation.
Professor Krawiec’s excellent contribution to the growing body of literature that documents the existence of systemic bias in favor of regulated firms in the rule making process raises an important question—what, if anything, should scholars do to recognize and to address this phenomenon? The answers would seem to include urging Congress to amend the APA and/or urging courts to overrule some of the judicial decisions that interpret the APA. One logical first step would be to determine whether the bias in favor of regulated firms in the rulemaking process actually has the adverse effects on the product of the rulemaking process that many of us suspect it has. It is plausible that the effect of that bias is actually socially beneficial because it offsets the pro-regulatory bias of agency decision makers. That is merely a plausible hypothesis, however, that needs to be empirically tested.