It’s comparatively better---allows for updating based on changing economics AND avoids administrative drift. Empirics prove.

How Sunsetting Resolves Key Problems of Crisis-Driven Financial Legislation.

There are multiple rationales for sunsetting statutes, including improving the information available to legislators and policymakers for reassessing legislation (40); enhancing legislative oversight over executive agencies to reduce administrative “drift” whereby an agency is following policies contrary to congressional preferences (34); and meeting budgetary requirements in tax laws by limiting duration of a tax credit or reduced rate (41). The rationales are not equally laudable: For instance, tax provisions set to expire are perpetually extended, and sunsetting thereby simply facilitates evading budgetary restrictions (41). However, concern over such a use of sunsetting is orthogonal to our context. Of the rationales for adopting a sunsetting strategy, the key justification in the financial regulatory domain is that sunsetting mitigates the predicament of legislating with minimal information in the aftermath of a crisis. It sets into motion a process by which postenactment information can be incorporated into regulation.

While Congress has included sunset provisions in a variety of contexts, and a broad application may well be reasonable, our advocacy of sunsetting is narrowly focused on financial legislation and its implementing regulations; sunsetting fits the shortcomings of crisis-driven financial legislation well. It not only resolves the informational deficiency of the legislation’s crisis-driven enacting environment, but also manages effectively the other two challenges of crisis-driven legislation. It eliminates the stickiness of legislation and implementing regulations because it alters the status quo, requiring legislative action for existing rules to continue in effect. It also facilitates a regulatory response to the dual problems characterizing financial regulation, that financial markets are subject to both radical and dynamic uncertainty. Economic and technological conditions may well have dramatically changed in the interim between enactment and sunset review, with financial innovation occurring apace, undermining the efficacy of regulation. An altered environment, which may render a statutory or regulatory provision unwittingly destabilizing of the financial system, can be addressed in the legislative second look mandated by sunsetting. As lessons from evolutionary biology make plain, these aspects of sunsetting are crucial for the long-term effectiveness of regulation.

For example, the risk weights of bank capital regulation preferencing securitized mortgages established in the late 1980s were not updated in the mid-2000s despite the innovation of subprime mortgages, which operated differently from prime mortgages with greater risk, and the shift in repo transactions and commercial paper markets—wholesale financing markets for financial institutions—to be collateralized by subprime mortgage-backed securities rather than government securities, the instruments and markets that sparked the global financial crisis (42). This does not mean that the risk weights would have been changed had sunsetting been in effect for the Basel regime. The timing of the sunset review matters—the prevalence of subprime mortgages occurred well over a decade after the initial Basel accord. However, had the accord been subject to a periodic sunsetting requirement, there would at least have been the possibility that the preferencing of mortgages would have been reconsidered before they sparked a global crisis, as the characteristics of securitized mortgages changed over time and their increased risk became more visible to Basel committee members.

The natural world continuously evolves through processes not coterminous with the life of a single organism or the attaining of a specific state. The dynamic environment in which financial institutions operate similarly would be best served by continuing, periodic sunset reviews, not just one-time review a number of years postenactment. In this regard, the functioning of the ex post reviews that sunsetting requires highlights a difference in the legislative parallel to evolutionary adaptative processes in that it is intentionally undertaken, and the outcome determined by informed deliberation over how best to achieve specifically desired ends.