|Source: Lucca, Seru and Trebbi|
"a unique dataset of career paths of more than 35,000 former and current regulators across all regulators of commercial banks and thrifts -- the Federal Reserve Banks (Fed), the Federal Depository Insurance Corporation (FDIC), the Office of Comptroller and Currency (OCC), the Office of Thrift Supervision (OTS), and state banking regulators -- that have posted their curricula vitae (CVs) on a major professional networking website."I found Figure 4, above, pretty interesting. 10% of people in this sample move from regulator to industry or back again each year. And this flow has doubled since the financial crisis and regulatory expansion.
Much of the paper is about business cycle effects, and doesn't really get in to the political economy which we're all chomping at the bit to understand. Section 4 does talk about the "quid pro quo" vs. "regulatory schooling" channels, and they find that
The evidence on higher gross inflows and outflows during periods of more intense regulatory activity are consistent with the regulatory school view. According to this view, workers may move into the regulatory sector to get schooled in the new complexity and then move from regulation to the private sector to earn the returns from regulatory schooling at times of higher enforcement activity when their regulatory human capital may be more valuable. The evidence is inconsistent with the quid-pro-quo channelwhich they explain
according to which future employment opportunities in the private sector may affect the strictness of actions of regulatory personnel.but they are full of caution about the results.
Most of all I want to cheer a deeply empirical approach to what usually are anecdotal analyses. This is a good first step, not the conclusive end of a literature.
The conclusion is interesting too. A sign of a good economist is he or she always has two hands.
Critics of the regulatory revolving door have proposed restricting the ability of regulatory personnel to transition to the private sector, which under federal law (see 12 U.S.C. § 1820(k)) is subject to a 30 one-year “cool-off” period for any compensation -- as an employee, officer, director, or consultant -- with a previously supervised institution. There have also been discussions to further tighten the hiring of industry insiders by regulatory agencies. Such arguments, while no doubt important, ignore other important positive aspects of the revolving door, such as its potential to enhance the ability of regulatory agencies to hire better quality workers. Our results suggest that the regulatory sector faces a retention challenge, as measured by the lower employment spells of regulatory personnel in more recent years and for workers with higher education. While more work is needed to quantify the regulatory distortions induced by the revolving door, our findings do suggest that tightening the revolving door without altering other aspects of worker incentives may further create challenges for regulatory agencies to seek and retain talent.