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Measuring Regulatory Complexity

Author

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

Abstract

Despite a heated debate on the perceived increasing complexity of fi nancial regulation, there is no available measure of regulatory complexity other than the mere length of regulatory documents. To fill this gap, we propose to apply simple measures from the computer science literature by treating regulation like an algorithm: a fixed set of rules that determine how an input (e.g., a bank balance sheet) leads to an output (a regulatory decision). We apply our measures to the regulation of a bank in a theoretical model, to an algorithm computing capital requirements based on Basel I, and to actual regulatory texts. Our measures capture dimensions of complexity beyond the mere length of a regulation. In particular, shorter regulations are not necessarily less complex, as they can also use more "high-level" language and concepts. Finally, we propose an experimental protocol to validate measures of regulatory complexity.

Suggested Citation

  • Colliard, Jean-Edouard & Georg, Co-Pierre, 2020. "Measuring Regulatory Complexity," CEPR Discussion Papers 14377, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:14377
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    References listed on IDEAS

    as
    1. 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.
    2. 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.
    3. Carlin, Bruce I., 2009. "Strategic price complexity in retail financial markets," Journal of Financial Economics, Elsevier, vol. 91(3), pages 278-287, March.
    4. Herring, Richard J., 2018. "The Evolving Complexity of Capital Regulation," Working Papers 18-01, University of Pennsylvania, Wharton School, Weiss Center.
    5. Germán Gutiérrez & Thomas Philippon, 2019. "The Failure of Free Entry," NBER Working Papers 26001, National Bureau of Economic Research, Inc.
    6. 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.
    7. repec:ces:ifodic:v:8:y:2010:i:2:p:14566986 is not listed on IDEAS
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    Cited by:

    1. 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.
    2. 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).

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    More about this item

    Keywords

    Financial regulation; Capital regulation; Regulatory complexity; Basel accords;
    All these keywords.

    JEL classification:

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

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