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

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Author Info
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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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: Dec 1981
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Handle: RePEc:nbr:nberwo:0638

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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. Caves, Richard E, 1980. "Industrial Organization, Corporate Strategy and Structure," Journal of Economic Literature, American Economic Association, vol. 18(1), pages 64-92, March. [Downloadable!] (restricted)
  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. [Downloadable!] (restricted)
  3. Richard A. Posner, 1971. "Taxation by Regulation," Bell Journal of Economics, The RAND Corporation, vol. 2(1), pages 22-50, Spring. [Downloadable!] (restricted)
  4. 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. [Downloadable!] (restricted)
  5. George J. Stigler, 1971. "The Theory of Economic Regulation," Bell Journal of Economics, The RAND Corporation, vol. 2(1), pages 3-21, Spring. [Downloadable!] (restricted)
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  1. Edward J. Kane, 1991. "Financial Regulation and Market Forces," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 127(III), pages 325-342, September. [Downloadable!]
  2. Rocco R. Huang, 2007. "Evaluating the real effect of bank branching deregulation - comparing contiguous counties across U.S. state borders," Working Paper Series 788, European Central Bank. [Downloadable!]
    Other versions:
  3. Monica Keneley & Margaret McKenzie, 2006. "An Evaluation of Privatisations in Australian Banking and Insurance," Economics Series 2006_09, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance. [Downloadable!]
  4. Alfred Broaddus, 1985. "Financial innovation in the United States -- background, current and prospects," Working Paper 85-02, Federal Reserve Bank of Richmond. [Downloadable!]
  5. Bernardo Batiz-Lazo & Kassa Wondelsebet, 2004. "The Dynamics of Product and Process Innovation in UK Banking," Industrial Organization 0405001, EconWPA. [Downloadable!]
    Other versions:
  6. Edward J. Kane, 2006. "Basel II: A Contracting Perspective," NBER Working Papers 12705, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Michele Fratianni, 2008. "Financial Crises, Safety Nets, and Regulation," Working Papers 2008-08, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy. [Downloadable!]
    Other versions:
  8. Carol Scotese Lehr, 2001. "Banks and Output Fluctuations," Working Papers 0101, VCU School of Business, Department of Economics.
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