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Principles of Financial Regulation$
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John Armour, Dan Awrey, Paul Davies, Luca Enriques, Jeffrey N. Gordon, Colin Mayer, and Jennifer Payne

Print publication date: 2016

Print ISBN-13: 9780198786474

Published to Oxford Scholarship Online: October 2016

DOI: 10.1093/acprof:oso/9780198786474.001.0001

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The Political Economy of Financial Regulation

The Political Economy of Financial Regulation

(p.553) 25 The Political Economy of Financial Regulation
Principles of Financial Regulation

John Armour

Dan Awrey

Paul Davies

Luca Enriques

Jeffrey N. Gordon

Colin Mayer

Jennifer Payne

Oxford University Press

Financial regulation is not independent of the process by which it is made. This process is often characterized by self-interested regulators whose decisions are influenced by politicians and other constituencies who may have little regard for regulatory objectives or broader social welfare. Politicians worrying about re-election may have a preference for promoting credit expansion and short-term growth at the expense of financial stability. They may also be captured by special interests and sensitive to regulatory arbitrage concerns. The result is regulatory failure. Examining these regulatory failures has provided us with potentially useful insights into how we might contain them. While there are no costless and faultless accountability mechanisms, it seems reasonable to suggest that better regulation is likely to emerge from institutions that are designed with a sensitivity to these issues.

Keywords:   financial regulation, political economy, regulatory capture, regulatory failure, regulatory arbitrage, accountability mechanisms

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