On January 30th President Trump signed an executive order mandating that most executive departments and agencies go on a regulatory diet. The EO requires agencies that create a new regulation to identify two regulations to be repealed. In FY 2017 covered agencies are required to keep the net cost of regulation to no greater than zero. This means that any costs of new regulation must be offset by repealing old ones.

Starting in FY 2018 agencies will be granted a “regulatory budget”. If Agency X is given a budget of $100 for regulations the new net cost of regulations (cost of new regulations minus savings from repealing old ones) needs to be at or under $100. The agencies will still need to identify two regulations to repeal for every new one.

A regulatory budget is a good idea, but the the 2-for-1 requirement seems superfluous. It may be there to force agencies’ hands and prevent them from gaming the math on regulatory cost. And as my colleague Oliver Sherouse points out:

@BrianRKnight Assuming cost is calculated on basis of individual rule, 2-out could (COULD) reduce systematic costs from complexity.

— Oliver Sherouse (@OliverSherouse) January 30, 2017

The order has several limitations and caveats, such as exempting national security and foreign affairs regulations, as well as certain internal agency regulations, as well as giving the Director of the Office of Management and Budget the ability to exempt other regulations. The devil will be in the details, so stay tuned.

Update 1: One particular devil is whether this order applies to independent agencies, which include many of the major financial regulators (e.g. SEC, Federal Reserve). It is unclear, at least to me (I never claimed to be an expert in the dark arts of admin law). Some previous executive ordersexplicitly covered independent agencies, this one does not. That doesn’t mean that the order doesn’t cover them. The definition of “agency” can include independent agencies, but the EO doesn’t cite to a definition in statute. It is unclear whether “executive department or agency” is meant to cover them. Does “executive” modify “agency” or just “department”? The “good” news is this may be litigated (perhaps by the CFPB claiming it isn’t covered), so we may get a court’s opinion on the question.

Update 2: The administration has confirmed that this EO will not apply to independent regulators, which would include most financial regulators. Whether this means the administration is going to give them a pass, issue a new EO, or try to get regulatory restraint via legislation remains to be seen.

Brian Knight is a Senior Research Fellow for the Financial Markets Working Group at the Mercatus Center at George Mason University. This post is cross-posted on FinRegRag.