IDEAS home Printed from https://ideas.repec.org/a/eee/jfinec/v174y2025ics0304405x25001941.html

Measuring regulatory complexity

Author

Listed:
  • Colliard, Jean-Edouard
  • Georg, Co-Pierre

Abstract

We propose a framework to study regulatory complexity, based on concepts from computer science. We distinguish different dimensions of complexity, classify existing measures, develop new ones, compute them on three examples — Basel I, the Dodd–Frank Act, and the European Banking Authority’s reporting rules — and test them using experiments and a survey on compliance costs. We highlight two measures that capture complexity beyond the length of a regulation. We propose a quantitative approach to the policy trade-off between regulatory complexity and precision.

Suggested Citation

  • Colliard, Jean-Edouard & Georg, Co-Pierre, 2025. "Measuring regulatory complexity," Journal of Financial Economics, Elsevier, vol. 174(C).
    • Handle: RePEc:eee:jfinec:v:174:y:2025:i:c:s0304405x25001941
    DOI: 10.1016/j.jfineco.2025.104186
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0304405X25001941
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jfineco.2025.104186?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or

    for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Omar Al‐Ubaydli & Patrick A. McLaughlin, 2017. "RegData: A numerical database on industry‐specific regulations for all United States industries and federal regulations, 1997–2012," Regulation & Governance, John Wiley & Sons, vol. 11(1), pages 109-123, March.
    2. Sanjeev Arora & Boaz Barak & Markus Brunnermeier & Rong Ge, 2009. "Computational Complexity and Information Asymmetry in Financial Products," Working Papers 2009-1, Princeton University. Economics Department..
    3. Tim Loughran & Bill Mcdonald, 2014. "Measuring Readability in Financial Disclosures," Journal of Finance, American Finance Association, vol. 69(4), pages 1643-1671, August.
    4. Francesco Trebbi & Miao Ben Zhang, 2022. "The Cost of Regulatory Compliance in the United States," NBER Working Papers 30691, National Bureau of Economic Research, Inc.
    5. Eric Zwick, 2021. "The Costs of Corporate Tax Complexity," American Economic Journal: Economic Policy, American Economic Association, vol. 13(2), pages 467-500, May.
    6. Gai, Prasanna & Kemp, Malcolm & Sánchez Serrano, Antonio & Schnabel, Isabel, 2019. "Regulatory complexity and the quest for robust regulation," Report of the Advisory Scientific Committee 8, European Systemic Risk Board.
    7. Xavier Gabaix & Thomas Graeber, 2024. "The Complexity of Economic Decisions," NBER Working Papers 33109, National Bureau of Economic Research, Inc.
    8. Andrew G. Haldane & Vasileios Madouros, 2012. "The dog and the frisbee," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 109-159.
    9. Ryan Oprea, 2021. "What Makes a Rule Complex? Erratum," American Economic Review, American Economic Association, vol. 111(2), pages 755-755, February.
    10. Bruce Ian Carlin & Shimon Kogan & Richard Lowery, 2013. "Trading Complex Assets," Journal of Finance, American Finance Association, vol. 68(5), pages 1937-1960, October.
    11. Nicola Cetorelli & James J. McAndrews & James Traina, 2014. "Evolution in bank complexity," Economic Policy Review, Federal Reserve Bank of New York, issue Dec, pages 85-106.
    12. Herring, Richard J., 2018. "The Evolving Complexity of Capital Regulation," Working Papers 18-01, University of Pennsylvania, Wharton School, Weiss Center.
    13. Xavier Gabaix & David Laibson, 2018. "Shrouded attributes, consumer myopia and information suppression in competitive markets," Chapters, in: Victor J. Tremblay & Elizabeth Schroeder & Carol Horton Tremblay (ed.), Handbook of Behavioral Industrial Organization, chapter 3, pages 40-74, Edward Elgar Publishing.
    14. Germán Gutiérrez & Thomas Philippon, 2019. "The Failure of Free Entry," NBER Working Papers 26001, National Bureau of Economic Research, Inc.
    15. Foarta, Dana & Morelli, Massimo, 2022. "The Common Determinants of Legislative and Regulatory Complexity," Research Papers 4068, Stanford University, Graduate School of Business.
    16. Zahid Amadxarif & James Brookes & Nicola Garbarino & Rajan Patel & Eryk Walczak, 2019. "The language of rules: textual complexity in banking reforms," Bank of England working papers 834, Bank of England.
    17. Haselmann, Rainer & Sarkar, Arkodipta & Singla, Shikhar & Vig, Vikrant, 2022. "The political economy of financial regulation," LawFin Working Paper Series 45, Goethe University, Center for Advanced Studies on the Foundations of Law and Finance (LawFin).
    18. repec:ces:ifodic:v:8:y:2010:i:2:p:14566986 is not listed on IDEAS
    19. Vladimir Asriyan & Dana Foarta & Victoria Vanasco, 2023. "The Good, the Bad, and the Complex: Product Design with Imperfect Information," American Economic Journal: Microeconomics, American Economic Association, vol. 15(2), pages 187-226, May.
    20. Bennett, Benjamin & Garvey, Gerald & Milbourn, Todd & Wang, Zexi, 2019. "The Role of Stock Price Informativeness in Compensation Complexity," Working Paper Series 2019-7, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    21. Richard J. Herring, 2018. "The Evolving Complexity of Capital Regulation," Journal of Financial Services Research, Springer;Western Finance Association, vol. 53(2), pages 183-205, June.
    22. Chad Kendall & Ryan Oprea, 2024. "On the complexity of forming mental models," Quantitative Economics, Econometric Society, vol. 15(1), pages 175-211, January.
    23. Adrien Alvero & Mr. Sakai Ando & Kairong Xiao, 2022. "Watch What They Do, Not What They Say: Estimating Regulatory Costs from Revealed Preferences," IMF Working Papers 2022/041, International Monetary Fund.
    24. Joseph Kalmenovitz & Michelle Lowry & Ekaterina Volkova, 2025. "Regulatory Fragmentation," Journal of Finance, American Finance Association, vol. 80(2), pages 1081-1126, April.
    25. Gissler, Stefan & Oldfather, Jeremy & Ruffino, Doriana, 2016. "Lending on hold: Regulatory uncertainty and bank lending standards," Journal of Monetary Economics, Elsevier, vol. 81(C), pages 89-101.
    26. Gai, Prasanna & Haldane, Andrew & Kapadia, Sujit, 2011. "Complexity, concentration and contagion," Journal of Monetary Economics, Elsevier, vol. 58(5), pages 453-470.
    27. Rubinstein, Ariel, 1986. "Finite automata play the repeated prisoner's dilemma," Journal of Economic Theory, Elsevier, vol. 39(1), pages 83-96, June.
    28. Carlin, Bruce I., 2009. "Strategic price complexity in retail financial markets," Journal of Financial Economics, Elsevier, vol. 91(3), pages 278-287, March.
    29. Juliane Begenau & Tim Landvoigt, 2021. "Financial Regulation in a Quantitative Model of the Modern Banking System," NBER Working Papers 28501, National Bureau of Economic Research, Inc.
    30. Hu'e Sullivan & Hurlin Christophe & P'erignon Christophe & Saurin S'ebastien, 2022. "Measuring the Driving Forces of Predictive Performance: Application to Credit Scoring," Papers 2212.05866, arXiv.org, revised Jan 2025.
    31. Charles W. Calomiris & Harry Mamaysky & Ruoke Yang, 2020. "Measuring the Cost of Regulation: A Text-Based Approach," NBER Working Papers 26856, National Bureau of Economic Research, Inc.
    32. Singla, Shikhar, 2023. "Regulatory costs and market power," LawFin Working Paper Series 47, Goethe University, Center for Advanced Studies on the Foundations of Law and Finance (LawFin).
    33. Paul Goldsmith-Pinkham & Beverly Hirtle & David O. Lucca, 2016. "Parsing the content of bank supervision," Staff Reports 770, Federal Reserve Bank of New York.
    34. Martin Hellwig, 2010. "Capital Regulation after the Crisis: Business as Usual?," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 8(02), pages 40-46, July.
    35. Joseph Kalmenovitz & Ralph Koijen, 2023. "Regulatory Intensity and Firm-Specific Exposure," The Review of Financial Studies, Society for Financial Studies, vol. 36(8), pages 3311-3347.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. is not listed on IDEAS
    2. Vita, Giuseppe Di, 2021. "Political corruption and legislative complexity: Two sides of same coin?," Structural Change and Economic Dynamics, Elsevier, vol. 57(C), pages 136-147.
    3. Singla, Shikhar, 2023. "Regulatory costs and market power," LawFin Working Paper Series 47, Goethe University, Center for Advanced Studies on the Foundations of Law and Finance (LawFin).
    4. Hałaj, Grzegorz & Martinez-Jaramillo, Serafin & Battiston, Stefano, 2024. "Financial stability through the lens of complex systems," Journal of Financial Stability, Elsevier, vol. 71(C).
    5. Michael Park & Shuping Wu & Russell J. Funk, 2025. "Regulation and Innovation Revisited: How Restrictive Environments Can Promote Destabilizing New Technologies," Organization Science, INFORMS, vol. 36(1), pages 240-260, January.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Francesco Trebbi & Miao Ben Zhang, 2022. "The Cost of Regulatory Compliance in the United States," NBER Working Papers 30691, National Bureau of Economic Research, Inc.
    2. Armstrong, Daphne M. & Glaeser, Stephen & Hoopes, Jeffrey L., 2025. "Measuring firm exposure to government agencies," Journal of Accounting and Economics, Elsevier, vol. 79(1).
    3. Marcus Buckmann & Andy Haldane & Anne-Caroline Hüser, 2021. "Comparing minds and machines: implications for financial stability," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 37(3), pages 479-508.
    4. Aghamolla, Cyrus & Smith, Kevin, 2023. "Strategic complexity in disclosure," Journal of Accounting and Economics, Elsevier, vol. 76(2).
    5. deHaan, Ed & Song, Yang & Xie, Chloe & Zhu, Christina, 2021. "Obfuscation in mutual funds," Journal of Accounting and Economics, Elsevier, vol. 72(2).
    6. Witte, Niklas, 2024. "Capital requirements in Pillar 1 or Pillar 2: does it matter for market discipline?," Working Paper Series 2988, European Central Bank.
    7. Vokata, Petra, 2021. "Engineering lemons," Journal of Financial Economics, Elsevier, vol. 142(2), pages 737-755.
    8. Célérier, Claire & Vallée, Boris, 2016. "Catering to investors through product complexity," ESRB Working Paper Series 14, European Systemic Risk Board.
    9. Haslag, Peter & Srinivasan, Kandarp & Thakor, Anjan V., 2024. "Competition, Product differentiation and Crises: Evidence from 18 million securitized loans," Journal of Financial Economics, Elsevier, vol. 162(C).
    10. Benjamin Clapham & Micha Bender & Jens Lausen & Peter Gomber, 2023. "Policy making in the financial industry: A framework for regulatory impact analysis using textual analysis," Journal of Business Economics, Springer, vol. 93(9), pages 1463-1514, November.
    11. Persson, Petra, 2018. "Attention manipulation and information overload," Behavioural Public Policy, Cambridge University Press, vol. 2(1), pages 78-106, May.
    12. Danilo Cascaldi-Garcia & Matteo Iacoviello, 2026. "Quantifying Deregulation and its Economic Effects: A Large Language Model Approach," International Finance Discussion Papers 1433, Board of Governors of the Federal Reserve System (U.S.).
    13. Stephen Littlechild, 2020. "An Overall Customer Satisfaction score for GB energy suppliers," Working Papers EPRG2027, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    14. Francisco Gomes & Michael Haliassos & Tarun Ramadorai, 2021. "Household Finance," Journal of Economic Literature, American Economic Association, vol. 59(3), pages 919-1000, September.
    15. Lilit Popoyan, 2020. "Macroprudential Policy: a Blessing or a Curse?," Review of Economics and Institutions, Università di Perugia, vol. 11(1-2).
    16. Garcia Gonzalez, Javier, 2018. "Effects of Consumer Financial Protection Introduced after the Financial Crisis of 2007-2008," MPRA Paper 89226, University Library of Munich, Germany.
    17. Junyu Chen & Tom Boot & Lingwei Kong & Weining Wang, 2026. "Transformer-based CoVaR: Systemic Risk in Textual Information," Papers 2602.12490, arXiv.org.
    18. Friesen, Lana & Earl, Peter E., 2015. "Multipart tariffs and bounded rationality: An experimental analysis of mobile phone plan choices," Journal of Economic Behavior & Organization, Elsevier, vol. 116(C), pages 239-253.
    19. repec:osf:socarx:akt2c_v1 is not listed on IDEAS
    20. Gui, Zhengqing & Huang, Yangguang & Zhao, Xiaojian, 2024. "Financial fraud and investor awareness," Journal of Economic Behavior & Organization, Elsevier, vol. 219(C), pages 104-123.
    21. Ioana Chioveanu & Jidong Zhou, 2013. "Price Competition with Consumer Confusion," Management Science, INFORMS, vol. 59(11), pages 2450-2469, November.

    More about this item

    Keywords

    ;
    ;
    ;

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jfinec:v:174:y:2025:i:c:s0304405x25001941. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505576 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.