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Regulatory Capture in Banking

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  • International Monetary Fund
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    Abstract

    Banks will want to influence the bank regulator to favor their interests, and they typically have the means to do so. It is shown that such "regulatory capture" in banking does not imply ineffectual regulation; a "captured" regulator may impose very tight, costly prudential requirements to reduce negative spillovers of risk-taking by weaker banks. In these circumstances, differences in the regulatory regime across jurisdictions may persist because each adapts its regulations to suit its dominant incumbent institutions.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 06/34.

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    Length: 25
    Date of creation: 01 Jan 2006
    Date of revision:
    Handle: RePEc:imf:imfwpa:06/34

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    Keywords: Banking; regulations; regulation; deposit guarantee; bankers; banking sector; bank regulation; capital adequacy; deposit insurance; standards; banking industry; bank supervisors; bank regulations; bank deposits; banking regulations; banking regulation; bank owners; bank failure; bank regulators; capital requirement; structural adjustment; capital regulation; bank finances; bank loans; bank management; banking supervision; bank regulator; banking legislation; connected lending; bank portfolio; bank supervision; regulatory forbearance; bank risk; bank risk taking; prudential requirement; bank profits; prudential regulation; banking associations; bank of england; bank riskiness;

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    References

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    1. Hans-Werner Sinn, 2001. "Risk Taking, Limited Liability and the Competition of Bank Regulators," NBER Working Papers 8669, National Bureau of Economic Research, Inc.
    2. Jean-Jacques LAFFONT & Jean TIROLE, 1990. "The Politics of Government Decision-Making : a Theory of Regulatory Capture," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9004, Université de Lausanne, Faculté des HEC, DEEP.
    3. Marc Quintyn & Michael Taylor, 2004. "Should Financial Sector Regulators Be Independent?," IMF Economic Issues 32, International Monetary Fund.
    4. Paul J. Siegelbaum & Khaled Sherif & Michael Borish & George Clarke, 2002. "Structural Adjustment in the Transition : Case Studies from Albania, Azerbaijan, Kyrgyz Republic, and Moldova," World Bank Publications, The World Bank, number 14052, October.
    5. Richard J. Rosen, 2002. "Is three a crowd? competition among regulators in banking," Proceedings 906, Federal Reserve Bank of Chicago.
    6. John A. Weinberg, 2002. "Competition among bank regulators," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 19-36.
    7. Abrams, Burton A & Settle, Russell F, 1993. " Pressure-Group Influence and Institutional Change: Branch-Banking Legislation during the Great Depression," Public Choice, Springer, vol. 77(4), pages 687-705, December.
    8. Robert Marquez & Giovanni Dell'Ariccia, 2001. "Competition Among Regulators," IMF Working Papers 01/73, International Monetary Fund.
    9. Randall S. Kroszner & Philip E. Strahan, 2000. "Obstacles to Optimal Policy: The Interplay of Politics and Economics in Shaping Bank Supervision and Regulation Reforms," NBER Working Papers 7582, National Bureau of Economic Research, Inc.
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    Cited by:
    1. Alessandro Gambini & Salim M. Darbar & Marco Arnone, 2007. "Banking Supervision," IMF Working Papers 07/82, International Monetary Fund.
    2. Agur, Itai, 2009. "Regulatory Competition and Bank Risk Taking," CEPR Discussion Papers 7524, C.E.P.R. Discussion Papers.
    3. Sándor Gardó, 2010. "Bank Governance and Financial Stability in CESEE: A Review of the Literature," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 1.
    4. Masciandaro, Donato & Quintyn, Marc & Taylor, Michael W., 2008. "Inside and outside the central bank: Independence and accountability in financial supervision: Trends and determinants," European Journal of Political Economy, Elsevier, vol. 24(4), pages 833-848, December.
    5. Ralph Chami & Connel Fullenkamp & Sunil Sharma, 2010. "A framework for financial market development," Journal of Economic Policy Reform, Taylor and Francis Journals, vol. 13(2), pages 107-135.
    6. Hardy, Daniel C. & Nieto, Maria J., 2011. "Cross-border coordination of prudential supervision and deposit guarantees," Journal of Financial Stability, Elsevier, vol. 7(3), pages 155-164, August.
    7. Boyer, Pierre C. & Ponce, Jorge, 2012. "Regulatory capture and banking supervision reform," Journal of Financial Stability, Elsevier, vol. 8(3), pages 206-217.

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