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Regulatory Capture in Banking

  • International Monetary Fund
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    Banks will want to influence the bank regulator to favor their interests, and they typically have the means to do so. It is shown that such "regulatory capture" in banking does not imply ineffectual regulation; a "captured" regulator may impose very tight, costly prudential requirements to reduce negative spillovers of risk-taking by weaker banks. In these circumstances, differences in the regulatory regime across jurisdictions may persist because each adapts its regulations to suit its dominant incumbent institutions.

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    Paper provided by International Monetary Fund in its series IMF Working Papers with number 06/34.

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    Length: 25
    Date of creation: 01 Jan 2006
    Date of revision:
    Handle: RePEc:imf:imfwpa:06/34
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    1. Jean-Jacques LAFFONT & Jean TIROLE, 1990. "The Politics of Government Decision-Making : a Theory of Regulatory Capture," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9004, Université de Lausanne, Faculté des HEC, DEEP.
    2. John A. Weinberg, 2002. "Competition among bank regulators," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 19-36.
    3. Abrams, Burton A & Settle, Russell F, 1993. " Pressure-Group Influence and Institutional Change: Branch-Banking Legislation during the Great Depression," Public Choice, Springer, vol. 77(4), pages 687-705, December.
    4. Marc Quintyn & Michael Taylor, 2004. "Should Financial Sector Regulators Be Independent?," IMF Economic Issues 32, International Monetary Fund.
    5. Richard J. Rosen, 2002. "Is three a crowd? competition among regulators in banking," Proceedings 906, Federal Reserve Bank of Chicago.
    6. Hans-Werner Sinn, 2002. "Risktaking, Limited Liability, and the Competition of Bank Regulators," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 59(3), pages 305-, August.
    7. Paul J. Siegelbaum & Khaled Sherif & Michael Borish & George Clarke, 2002. "Structural Adjustment in the Transition : Case Studies from Albania, Azerbaijan, Kyrgyz Republic, and Moldova," World Bank Publications, The World Bank, number 14052, March.
    8. Robert Marquez & Giovanni Dell'Ariccia, 2001. "Competition Among Regulators," IMF Working Papers 01/73, International Monetary Fund.
    9. Randall S. Kroszner & Philip E. Strahan, 2000. "Obstacles to Optimal Policy: The Interplay of Politics and Economics in Shaping Bank Supervision and Regulation Reforms," NBER Working Papers 7582, National Bureau of Economic Research, Inc.
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