Delegation and the Regulation of Finance in the United States Since 1950∗

This paper explores the determinants of financial market regulation in the United States since 1950. Using a formal model of the policy making process, we find that domestic political factors do afect the degree of financial regu- lation. Congress delegates regulatory agencies more discretionary authority: 1) as the policy preferences between Congress and the executive become more similar; 2) as firm investments become riskier; and 3) as Congress becomes more uncertain of the level of systemic risk. As a result, financial markets are more heavily regulated when firm-specific and systemic risks are high. But when inter-branch preferences difer, Congress may allow risky investments to be made that, ex post, it wished it had regulated. To test these predictions, we code each financial law enacted in the last 60 years for the amount of discre- tionary authority delegated to executive branch actors and the administrative procedures constraining this delegated authority. The analysis sheds light on variation in financial regulation over time, explaining why the financial inno- vations of the 1960s were met with new regulations, while those of the past two decades were not. Such a