Efficiency in Finacial Regulation and Reform of Supervisory
AbstractTraditionally, the financial regulation it used to structure itself on the basis of specialized organizations, each one responsible to supervise the intermediaries by the type of activity that was carried out. The current trend is toward an integrated model that reunite in one or two organizations the different functions that previously were responsibility of diverse specialized authorities. From the modern theory of economic regulations it is possible to assess a regulatory regimen by how close is to address the market failures on the market supposed to regulated and how minimal is the social cost it imposed over its regulated entities and the market as a whole. A regulatory regime of fragmented supervisory authorities increases the risk of regulatory failures therefore not always capable to exploit the economies of scale and scope in a regulatory task intensive in opportune information gathering and processing, also exposed to regulatory forbearance and becoming interest groups by themselves. In fact, becoming each regulator a monopoly over its regulated entities, creating rents by protecting a turf of captive supervisory powers incompatible and unsynchronized with each other. Therefore, incrementing the cost of regulation. Considering the cost of regulation as a fixed cost on each domestic financial market. An efficient setting would be a low fixed cost relative to a high sized financial market. The relative performance efficiency between the multiple regulatory agencies model and the single regulator model is empirically an open question, despite of the international spread of the single model in the last decade in more than ten countries. Low income countries with severe underdeveloped financial markets and costly multiple authorities scheme calls for a prime candidates to reform its financial regulatory. Using indicators from supervisory cost and financial activity size, Mexico appears to be the economy with the highest fixed cost in an underdeveloped or small size financial activity relative to the GDP therefore, it means a highly inefficient regulatory organization. Urgent supervisory institutional scheme reform is required according with international benchmarks.
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Bibliographic InfoPaper provided by EconWPA in its series Law and Economics with number 0209002.
Length: 22 pages
Date of creation: 16 Sep 2002
Date of revision:
Note: Type of Document - Acrobat; prepared on iMac; pages: 22; figures: 2 included. Prepared for the 8th APEC FINANCIERS´GROUP MEETING in behalf of the Asociacion de Banqueros de Mexico.
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Banking Regulation; Prudential Regulation; Regulatory Failures;
Find related papers by JEL classification:
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
- K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2002-09-28 (All new papers)
- NEP-FIN-2002-09-28 (Finance)
- NEP-LAW-2002-09-28 (Law & Economics)
- NEP-REG-2002-09-28 (Regulation)
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