IDEAS home Printed from https://ideas.repec.org/p/imf/imfwpa/2006-034.html
   My bibliography  Save this paper

Regulatory Capture in Banking

Author

Listed:
  • International Monetary Fund

Abstract

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.

Suggested Citation

  • International Monetary Fund, 2006. "Regulatory Capture in Banking," IMF Working Papers 2006/034, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2006/034
    as

    Download full text from publisher

    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=18798
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. 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.
    2. John A. Weinberg, 2002. "Competition among bank regulators," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 19-36.
    3. George J. Stigler, 1971. "The Theory of Economic Regulation," Bell Journal of Economics, The RAND Corporation, vol. 2(1), pages 3-21, Spring.
    4. Mr. Robert Marquez & Mr. Giovanni Dell'Ariccia, 2001. "Competition Among Regulators," IMF Working Papers 2001/073, International Monetary Fund.
    5. Jean-Jacques Laffont & Jean Tirole, 1991. "The Politics of Government Decision-Making: A Theory of Regulatory Capture," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(4), pages 1089-1127.
    6. Mr. Marc G Quintyn & Mr. Michael W Taylor, 2004. "Should Financial Sector Regulators Be Independent?," IMF Economic Issues 2004/001, International Monetary Fund.
    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 - Books, The World Bank Group, number 14052.
    8. Rosen, Richard J, 2003. "Is Three a Crowd? Competition among Regulators in Banking," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(6), pages 967-998, December.
    9. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64(5), pages 416-416.
    10. Marc G Quintyn & Michael W Taylor, 2004. "Should Financial Sector Regulators Be Independent?," IMF Economic Issues 32, International Monetary Fund.
    11. Hans-Werner Sinn, 2002. "Risktaking, Limited Liability, and the Competition of Bank Regulators," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 59(3), pages 305-329, August.
    12. 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.
    13. Kroszner, Randall S., 2000. "Obstacles To Optimal Policy: The Interplay of Politics and Economics in Shaping Bank Supervision and Regulation Reforms," Working Papers 158, The University of Chicago Booth School of Business, George J. Stigler Center for the Study of the Economy and the State.
    14. Rosenbluth, Frances & Schaap, Ross, 2003. "The Domestic Politics of Banking Regulation," International Organization, Cambridge University Press, vol. 57(2), pages 307-336, April.
    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. Masciandaro, Donato & Quintyn, Marc & Taylor, Michael W., 2008. "Inside and outside the central bank: Independence and accountability in financial supervision: Trends and determinants," European Journal of Political Economy, Elsevier, vol. 24(4), pages 833-848, December.
    2. Donato Masciandaro & Mr. Marc G Quintyn & Mr. Michael W Taylor, 2008. "Financial Supervisory Independence and Accountability–Exploring the Determinants," IMF Working Papers 2008/147, International Monetary Fund.
    3. Josefin Sabo & Lena Andersson-Skog, 2017. "Dynamite Regulations. The Explosives Industry, Regulatory Capture and the Swedish Government 1858-1948," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 23(2), pages 191-201, May.
    4. Vollmer Uwe, 2015. "‚Stairway to Heaven‘ oder ‚Highway to Hell‘? – Eine Einschätzung der Europäischen Bankenunion / ‚Stairway to Heaven‘ or ‚Highway to Hell‘? – An Evaluation of the European Banking Union," ORDO. Jahrbuch für die Ordnung von Wirtschaft und Gesellschaft, De Gruyter, vol. 66(1), pages 147-174, January.
    5. Ralph Chami & Connel Fullenkamp & Sunil Sharma, 2010. "A framework for financial market development," Journal of Economic Policy Reform, Taylor and Francis Journals, vol. 13(2), pages 107-135.
    6. Schuknecht, Ludger & Siegerink, Vincent, 2020. "The political economy of the G20 agenda on financial regulation," European Journal of Political Economy, Elsevier, vol. 65(C).
    7. John Nkwoma Inekwe, 2019. "The exploration of economic crises: parameter uncertainty and predictive ability," Scottish Journal of Political Economy, Scottish Economic Society, vol. 66(2), pages 290-313, May.
    8. Sándor Gardó, 2010. "Bank Governance and Financial Stability in CESEE: A Review of the Literature," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 6-31.
    9. Norbert Walter & Steffen Kern, 2011. "Politikberatung im EU-Finanzbinnenmarkt: vom Lamfalussy-Prozess zur europäischen Aufsicht," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 80(1), pages 91-105.
    10. Boyer, Pierre C. & Ponce, Jorge, 2012. "Regulatory capture and banking supervision reform," Journal of Financial Stability, Elsevier, vol. 8(3), pages 206-217.
    11. Alessandro Gambini & Mr. Salim M. Darbar & Mr. Marco Arnone, 2007. "Banking Supervision: Quality and Governance," IMF Working Papers 2007/082, International Monetary Fund.
    12. Andrew C. Call & Nathan Y. Sharp & Paul A. Wong, 2019. "Changes in analysts’ stock recommendations following regulatory action against their brokerage," Review of Accounting Studies, Springer, vol. 24(4), pages 1184-1213, December.
    13. Agur, Itai, 2009. "Regulatory Competition and Bank Risk Taking," CEPR Discussion Papers 7524, C.E.P.R. Discussion Papers.
    14. Ralph Chami & Connel Fullenkamp & Sunil Sharma, 2010. "A framework for financial market development," Journal of Economic Policy Reform, Taylor and Francis Journals, vol. 13(2), pages 107-135.
    15. 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.
    16. VanHoose, David, 2011. "Systemic Risk and Macroprudential Bank Regulation: A Critical Appraisal," Journal of Financial Transformation, Capco Institute, vol. 33, pages 45-60.
    17. Hardy, Daniel C. & Nieto, Maria J., 2011. "Cross-border coordination of prudential supervision and deposit guarantees," Journal of Financial Stability, Elsevier, vol. 7(3), pages 155-164, August.

    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. Pablo Paniagua, 2017. "The institutional rationale of central banking reconsidered," Constitutional Political Economy, Springer, vol. 28(3), pages 231-256, September.
    2. Mr. Martin Cihak & Mr. Jörg Decressin, 2007. "The Case for a European Banking Charter," IMF Working Papers 2007/173, International Monetary Fund.
    3. Marcelo Rezende, 2014. "The Effects of Bank Charter Switching on Supervisory Ratings," Finance and Economics Discussion Series 2014-20, Board of Governors of the Federal Reserve System (U.S.).
    4. Viral V. Acharya, 2003. "Is the International Convergence of Capital Adequacy Regulation Desirable?," Journal of Finance, American Finance Association, vol. 58(6), pages 2745-2782, December.
    5. Braun, Matias, 2004. "Trade Liberalization and the Politics of Financial Development," Santa Cruz Department of Economics, Working Paper Series qt70v7f9ff, Department of Economics, UC Santa Cruz.
    6. Cécile Carpentier & Jean-Marc Suret, 2003. "The Canadian and American Financial Systems: Competition and Regulation," Canadian Public Policy, University of Toronto Press, vol. 29(4), pages 431-447, December.
    7. Matias Braun & Claudio Raddatz, 2004. "Trade liberalization and the politics of financial development," Working Papers 04-3, Federal Reserve Bank of Boston.
    8. VanHoose, David, 2011. "Systemic Risk and Macroprudential Bank Regulation: A Critical Appraisal," Journal of Financial Transformation, Capco Institute, vol. 33, pages 45-60.
    9. Friedrich Heinemann & Martin Schüler, 2004. "A Stiglerian View on Banking Supervision," Public Choice, Springer, vol. 121(1), pages 99-130, October.
    10. Nicolò Fraccaroli, 2019. "Supervisory Governance, Capture and Non-Performing Loans," CEIS Research Paper 471, Tor Vergata University, CEIS, revised 08 Oct 2019.
    11. Sumit Agarwal & David Lucca & Amit Seru & Francesco Trebbi, 2014. "Inconsistent Regulators: Evidence from Banking," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(2), pages 889-938.
    12. Bartolozzi, D. & Gara, M. & Marchetti, D.J. & Masciandaro, D., 2022. "Designing the anti-money laundering supervisor: The governance of the financial intelligence units," International Review of Economics & Finance, Elsevier, vol. 80(C), pages 1093-1109.
    13. Prast, H.M., 2007. "Who pays for Banking Supervision?," Other publications TiSEM 2ef7a617-610e-4d00-a072-f, Tilburg University, School of Economics and Management.
    14. Schüler, Martin, 2003. "Incentive Problems in Banking Supervision: The European Case," ZEW Discussion Papers 03-62, ZEW - Leibniz Centre for European Economic Research.
    15. Gabriella Montinola & Ramon Moreno, 2001. "The political economy of foreign bank entry and its impact: theory and a case study," Pacific Basin Working Paper Series 2001-11, Federal Reserve Bank of San Francisco.
    16. Ojo, Marianne, 2006. "The Role of External Auditors and International Accounting Bodies in Financial Regulation and Supervision," MPRA Paper 354, University Library of Munich, Germany, revised Jul 2006.
    17. Mountain, Bruce R., 2019. "Ownership, regulation, and financial disparity: The case of electricity distribution in Australia," Utilities Policy, Elsevier, vol. 60(C), pages 1-1.
    18. Georges Dionne, 2003. "The Foundationsof Banks' Risk Regulation: A Review of Literature," THEMA Working Papers 2003-46, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    19. Blind, Knut & Petersen, Sören S. & Riillo, Cesare A.F., 2017. "The impact of standards and regulation on innovation in uncertain markets," Research Policy, Elsevier, vol. 46(1), pages 249-264.
    20. Lara Scicluna & Sharon Seychell & Jonathan Spiteri & Simon Grima, 2019. "The Maltese Financial Services Industry’s Perception on the Regulators: An Empirical Analysis," European Research Studies Journal, European Research Studies Journal, vol. 0(1), pages 16-51.

    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:imf:imfwpa:2006/034. 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: Akshay Modi (email available below). General contact details of provider: https://edirc.repec.org/data/imfffus.html .

    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.