Hester Peirce

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Hester Peirce

  • Senior Research Fellow

Hester Peirce is a senior research fellow at the Mercatus Center at George Mason University. Her primary research interests relate to the regulation of the financial markets.

Before joining Mercatus, Peirce served on Senator Richard Shelby’s staff on the Senate Committee on Banking, Housing, and Urban Affairs. In that position, she worked on financial regulatory reform following the financial crisis of 2008 as well as oversight of the regulatory implementation of the Dodd-Frank Act.

Peirce served at the Securities and Exchange Commission as a staff attorney and as counsel to Commissioner Paul S. Atkins. Before that, she clerked for Judge Roger B. Andewelt on the Court of Federal Claims and was an associate at a Washington, DC law firm.

She currently serves on the Investor Advisory Committee, which advises the Securities and Exchange Commission. Peirce’s work has been published in such outlets as the Hill and American Banker, and she is a regular contributor to Real Clear Markets. She is the editor of, and a contributor to, the book Dodd-Frank: What It Does and Why It’s Flawed, published by Mercatus in 2012.

Hester Peirce earned her BA in economics from Case Western Reserve University and her JD from Yale Law School.

Working Papers

Securities Lending and the Untold Story in the Collapse of AIG

Hester Peirce | May 01, 2014
American International Group, Inc. (AIG), a large insurance company, received a massive bailout during the financial crisis in response to difficulties centered on the company’s multifaceted exposure to residential mortgage-backed securities. The company is back on its feet, albeit in more streamlined form and with a new overseer—the Federal Reserve. This paper focuses on a piece of the AIG story that is rarely told—the role of the company’s securities-lending program in imperiling the company and some of its insurance subsidiaries. The paper argues that regulatory responses to AIG have been inapt. AIG did not need another regulator, but better risk management. The markets would have conveyed that message clearly had regulators not intervened to ensure AIG’s survival. This paper adds the missing piece to the AIG story in an effort to challenge the notion that more regulatory oversight for companies like AIG will prevent future crises.

Opening the Gate to Money Market Fund Reform

Hester Peirce, Robert Greene | Apr 02, 2014
For decades, money market funds (MMFs) were thought to be safe, low-risk investments. The financial crisis of 2007–2009 cast MMFs in a new, less favorable light, which prompted calls for reform. Our paper offers a reform alternative that builds on MMF boards of directors and their well-established responsibility for making key decisions for MMFs. After a brief overview of the regulatory history of MMFs, we describe the responsibilities that boards have under current law, the problems MMFs encountered during the crisis, and market and government responses to these problems. Evidence shows that during the crisis, investors were discerning in deciding whether and when to run; more risky, less liquid funds experienced higher volumes of redemptions. This finding, along with our assessment of funds’ boards of directors’ responsibilities, helps to lay the groundwork for considering the various options for addressing problems still facing MMFs, including our proposal to allow boards to gate their funds when faced by potentially destabilizing redemption pressures.

SEC Regulatory Analysis: A Long Way to Go and a Short Time to Get There

Hester Peirce, Jerry Ellig | Mar 31, 2014
SEC Regulatory Analysis: “A Long Way to Go and a Short Time to Get There”…

How Are Small Banks Faring Under Dodd-Frank?

Hester Peirce, Ian Robinson, Thomas Stratmann | Feb 27, 2014
This paper presents the results of the Mercatus Center’s Small Bank Survey, which include responses from approximately 200 banks across 41 states with less than $10 billion in assets each, serving mostly rural and small metropolitan markets.
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Charts

The Decline of US Small Banks (2000–2013)

Hester Peirce, Robert Greene | Feb 24, 2014
The charts below show that both the number of US small banks (which we define as banks with $10 billion or less in assets) and their share of US banking assets and domestic deposits declined substantially between 2000 and 2008. Simultaneously, the five largest US banks’ share of US banking assets and domestic deposits increased markedly.

The Federal Reserve's Expanding Regulatory Authority Initiated by Dodd-Frank

Hester Peirce, Robert Greene | Nov 13, 2013
The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) significantly expanded the regulatory authority of the Federal Reserve Board of Governors (the Board) over banking institutions, financial firms, and their subsidiaries.

Policy Briefs

How Proxy Advisory Services Became So Powerful

James K. Glassman, Hester Peirce | Jun 18, 2014
This policy brief outlines the regulations that give PAs their power and the nature and adverse consequences of that power, and offers suggestions for reforms.

The Federal Reserve's Expanding Regulatory Umbrella

Hester Peirce, Robert Greene | Apr 03, 2013
The Federal Reserve’s performance as a regulator in the years leading up to the 2007–08 crisis earned it widespread criticism. In the wake of the crisis, its fate as a regulator was uncertain as Congress considered regulatory reforms. Some reform proposals would have substantially diminished the Federal Reserve’s regulatory role, but the financial reform ultimately signed into law in July 2010—Dodd- Frank—instead increased the Federal Reserve’s regulatory power.

Rethinking the Volcker Rule

Hester Peirce, Robert Greene | Jan 15, 2013
The Volcker Rule prohibits financial institutions reliant on deposit insurance from engaging in proprietary trading and limits their relationships with hedge funds and other private funds. These activities were not central to the most recent financial crisis,[1] but former Federal Reserve chairman Paul Volcker championed the rule’s inclusion in the Dodd- Frank Act in response to legitimate concerns that the federal deposit insurance umbrella was being stretched beyond its intended purpose. Bad trading bets by these financial institutions could cause losses for which the deposit insurance fund (and ultimately taxpayers) would be on the hook.

Testimony & Comments

Disclosure of Consumer Complaint Narrative Data

Hester Peirce, Vera Soliman | Sep 10, 2014
The Bureau initiated its database without due consideration of the problem the Bureau was trying to solve or the costs and benefits of the database. Rather than expanding the database’s potential to cause unintended harm, the Bureau should return to the drawing board.

Legislation to Reform the Federal Reserve on Its 100-year Anniversary

Hester Peirce | Jul 10, 2014
As the Federal Reserve celebrates one hundred years, reform efforts are timely. Consideration of fundamental questions about the Federal Reserve’s role in the regulatory landscape and in the markets should accompany those efforts.

Increasing the Effectiveness of the Bureau of Consumer Financial Protection in Protecting Consumers

Hester Peirce | May 21, 2014
The flaws in the Bureau’s design impair its ability to operate effectively for consumers. Although more fundamental reforms are needed, incremental reforms will help the Bureau to set appropriate priorities and seek relevant comments before acting. Making the agency more accountable, more transparent, and more focused will also make it more effective at ensuring that the financial system is serving the needs of consumers.

Rethinking the Federal Reserve's Many Mandates on its 100-Year Anniversary

Hester Peirce | Dec 12, 2013
When the Dodd-Frank Act was being developed, one issue under consideration was whether the Board should lose some of its regulatory powers in view of its poor regulatory performance prior to the crisis. Instead, Dodd-Frank substantially increased the Board’s regulatory powers. One of the most important new powers is the authority to regulate nonbank financial institutions designated systemically important by the Financial Stability Oversight Council. So far, General Electric Capital Corporation, American International Group, and Prudential have been so designated, with additional entities likely to follow. These financial institutions will present the bank-focused Board with new regulatory challenges. It is important that the Board respond with well-vetted, tailored regulations that recognize that these entities are not banks and cannot be effectively regulated as if they were.
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Media Clippings

Critics Claim Volcker Rule Skirts Cost-Benefit Laws

Hester Peirce | Feb 12, 2014
Outlet: Reuters

How the Bank Lobby Loosened U.S. Reins on Derivatives

Hester Peirce | Sep 04, 2013
Outlet: Bloomberg

Next Fed Chief Inherits Expanded Powers

Hester Peirce | Jul 31, 2013
Outlet: The Hill

Hester Pierce Discusses Reservations Surrounding Senate Deal on Nominees

Hester Peirce | Jul 16, 2013
Outlet: The Hill
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Expert Commentary

Sorry William Dudley, Regulation Itself Is the Culture Killer

Real Clear Markets
By Hester Peirce |
Oct 22, 2014

Mr. Dudley is correct that "a good culture cannot simply be mandated by regulation or imposed by supervision." A bad culture, however, can be cultivated by regulators that micromanage firms and offer banks cover when they make mistakes.

License to Invest

The Hill
By Hester Peirce |
Oct 15, 2014

Last week, the Securities and Exchange Commission's (SEC) Investor Advisory Committee — on which I currently serve — recommended, over my objection, that the SEC change the way it assesses who qualifies as an "accredited investor." Although sensibly challenging the existing approach to accreditation, the committee's approach was too conservative. Instead, the committee should have called for a more fundamental reconsideration of whether existing investment restrictions are consistent with investor protection.

Hank Greenberg's AIG Lawsuit Could Crush 'Too Big To Fail'

Real Clear Markets
By Hester Peirce |
Oct 08, 2014

The trial challenging the government's rescue of American International Group is in full swing this week. Ben Bernanke, Hank Paulson, and Tim Geithner are making appearances. AIG's former CEO-through his charitable foundation, which is a large AIG shareholder-has sued the government for its allegedly punitive bailout of AIG during the financial crisis. The government officials who bailed out the company may find it hard to run from their prior statements.

Banking Regulators Could Use a Lesson in Humility from Hayek

American Banker
By Hester Peirce |
Sep 30, 2014

Four decades after Hayek received the Nobel Prize, there are many corners of the world that have yet to absorb his message of humility. To change that, financial regulators and their legislative benefactors should commemorate this two-score anniversary milestone by revisiting Hayek's pioneering work.
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Contact

Hester Peirce

Research Areas

Consumer Protection, Financial Crisis, Financial Regulation, Financial Markets

Videos

Hester Peirce Discusses Dodd Frank on Al Jazeera

Hester Peirce | July 21, 2014

Hester Peirce Testifies at "Legislation to Reform the Federal Reserve on Its 100-year Anniversary"

Hester Peirce | July 10, 2014

The Real Story of AIG's Failure and why Dodd-Frank Didn't Fix it

Hester Peirce | June 17, 2014

How Will Dodd-Frank Affect the Future of Small Banks?

Hester Peirce, Ian Robinson | February 27, 2014

Regulatory Landscape: Burdens on Small Financial Institutions

Hester Peirce | December 03, 2013
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Books

Dodd-Frank: What It Does and Why It's Flawed

| Jan 08, 2013
More than 360,000 words in length, the Dodd-Frank Wall Street Reform and Consumer Protection Act is the longest and most complex piece of financial legislation in American history. The nature and magnitude of its effects, both intended and unintended, will become clearer as regulators exercise the broad discretion given to them under the law.

Podcasts

Hester Peirce Discusses Her Public Interest Comment on the CFPB’s Proposal to Expand Its Consumer Complaint Database

Hester Peirce | September 10, 2014
Hester Peirce Discusses Her Public Interest Comment on the CFPB’s Proposal to Expand Its Consumer Complaint Database…
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