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Measuring Regulatory Complexity

Author

Listed:
  • Jean-Edouard Colliard

    (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

  • Co-Pierre Georg

Abstract

Despite a heated debate on the perceived increasing complexity of financial 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

  • Jean-Edouard Colliard & Co-Pierre Georg, 2020. "Measuring Regulatory Complexity," Working Papers hal-02896649, HAL.
    • Handle: RePEc:hal:wpaper:hal-02896649
    DOI: 10.2139/ssrn.3523824
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    References listed on IDEAS

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

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    Cited by:

    1. 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).
    2. Hałaj, Grzegorz & Martinez-Jaramillo, Serafin & Battiston, Stefano, 2024. "Financial stability through the lens of complex systems," Journal of Financial Stability, Elsevier, vol. 71(C).
    3. 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.

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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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