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Regulatory Capture in Banking

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Author Info
Daniel C. L. Hardy
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 bankng 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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Paper provided by International Monetary Fund in its series IMF Working Papers with number 06/34.

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Length: 25 pages
Date of creation: 08 Feb 2006
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Handle: RePEc:imf:imfwpa:06/34

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Keywords: Banking Bank regulations Capital Competition

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This paper has been announced in the following NEP Reports: References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Hans-Werner Sinn, 2001. "Risk Taking, Limited Liability and the Competition of Bank Regulators," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
    Other versions:
  2. John A. Weinberg, 2002. "Competition among bank regulators," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 19-36. [Downloadable!]
  3. Rosen, Richard J, 2003. " Is Three a Crowd? Competition among Regulators in Banking," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(6), pages 967-98, December.
  4. 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.
  5. Laffont, Jean-Jacques & Tirole, Jean, 1991. "The Politics of Government Decision-Making: A Theory of Regulatory Capture," The Quarterly Journal of Economics, MIT Press, vol. 106(4), pages 1089-127, November. [Downloadable!] (restricted)
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  6. Giovanni Dell'Ariccia & Robert Marquez, 2001. "Competition Among Regulators," IMF Working Papers 01/73, International Monetary Fund.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Alessandro Gambini & Marco Arnone & Salim M. Darbar, 2007. "Banking Supervision: Quality and Governance," IMF Working Papers 07/82, International Monetary Fund. [Downloadable!]
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