Securities and Exchange Commission economists are throwing coldwater on Wall Street's persistent complaints that post-crisisregulations have made markets more susceptible to shocks.

The market dynamics of recent years weren't necessarily causedby stricter rules imposed by U.S. and international regulatorsafter the 2008 financial meltdown, the SEC's Division of Economicand Risk Analysis said in a 300-plus page report to lawmakersreleased Tuesday. The report examines the extent to which measuressuch as the Volcker Rule and capital requirements associated withBasel III have affected a range of asset classes, includingequities, government and corporate bonds as well asderivatives.

The SEC economists said that their analysis didn't find adecline in total issuance of securities following the enactment ofthe 2010 Dodd-Frank Act. “It is difficult to disentangle the manycontributing factors that influence” the sale of new securities,they wrote, adding that private market sales of debt and equitieshave “increased substantially” in recent years.

The findings in the report, which was ordered by Congress, willbe unwelcome news for big financial firms that have beencomplaining about the rules since they were enacted. The industryhas found sympathy among regulators appointed by President DonaldTrump. Last month, the agencies that wrote the Volcker Rule agreedto start revising it, people familiar with the matter have said. InJune, the Trump administration made the case for easing many of thestrictures that were imposed on Wall Street after the financialcrisis.

When Wall Street firms criticize the impact of post-crisisrules, they frequently cite the events of Oct. 15, 2014, when theyield of the benchmark 10-year Treasury note plunged and then shotback up within minutes. Yields had fluctuated that much only threeprevious times since 1998, and in each of those instances there wasan obvious catalyst. This time there wasn't.

In the ensuing months, JPMorgan Chase & Co. CEO Jamie Dimonsaid that the event should serve as a “warning shot” to investors.Blackstone Group CEO Stephen Schwarzman even argued thatregulations had made markets so unsafe that they could triggeranother financial crisis.

The SEC economists said they found “no consistent empiricalevidence” that regulations including the Volcker Rule, whichrestricts banks from making bets with their own capital, dampedtrading in U.S. Treasuries.

After Trump signed an executive order in February directingagencies to examine whether rules should be dialed back, histop economic adviser, former Goldman Sachs President Gary Cohn,said regulations had “taken an enormous amount of liquidity out ofthe markets.”

There too, the SEC economists said they weren't so sure, atleast for corporate bonds. For instance, the agency's report notedthat banks retrenched from some trades after the crisis to cutmarket risk.

“Evidence suggests that in recent years dealers have been lesslikely to engage in risky principal transactions,” the report said.“With respect to the potential regulatory factors behind observedliquidity changes, there is a lack of agreement in researchregarding the direction and magnitude of regulatory impacts.”

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