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Accelerating Inflation, Technological Innovation, and the Decreasing Effectiveness of Banking Regulation

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  • Edward J. Kane

Abstract

To explain the evolution of U.S. deposit institutions and markets in the 1960sand 1970s, we feed into the regulatory dialectic assumptions about the objectives of federal banking regulation and about outside forces that disturb the adjustment process. The disturbing exogenous forces are accelerating change in the technological and market environment of commercial banking and increasing uncertainty concerning the future speed of enviromental change. We hypothesize that, in the face of these environmental changes, the adaptive efficiency shown on average by deposit-institution managers is greater than that shown by managers of the several competing banking agencies. Incorporating this differential adaptive capacity into the regulatory dialectic helps us to understand how increases in the pace of environmental change and in the degree of environmental uncertainty led regulatee responses to come more quickly and regulatory responses to come more slowly. The bottom line is that, when the environment changes rapidly and becomes more uncertain, traditional forms of U.S. banking regulation can be overwhelmed by technological and regulation-induced innovation.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0638.

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Date of creation: Mar 1981
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Publication status: published as Kane, Edward J. "Accelerating Inflation, Technological Innovation, and the Decreasing Effectiveness of Banking Regulation." The Journal of Finance, Vol. XXXVI, No. 2, (May 1981), pp. 355-367.
Handle: RePEc:nbr:nberwo:0638

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  1. George J. Stigler, 1971. "The Theory of Economic Regulation," Bell Journal of Economics, The RAND Corporation, vol. 2(1), pages 3-21, Spring.
  2. Kane, Edward J, 1977. "Good Intentions and Unintended Evil: The Case against Selective Credit Allocation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 9(1), pages 55-69, February.
  3. Caves, Richard E, 1980. "Industrial Organization, Corporate Strategy and Structure," Journal of Economic Literature, American Economic Association, vol. 18(1), pages 64-92, March.
  4. Richard A. Posner, 1971. "Taxation by Regulation," Bell Journal of Economics, The RAND Corporation, vol. 2(1), pages 22-50, Spring.
  5. Marris, Robin & Mueller, Dennis C, 1980. "The Corporation, Competition, and the Invisible Hand," Journal of Economic Literature, American Economic Association, vol. 18(1), pages 32-63, March.
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