Comments on: All bank regulators are captured

By: Blissex

Blissex — Fri, 02 Dec 2011 10:37:41 +0000

Rereading my previous comment what I tried so say is that it is naive to expect regulators not to be captured to some (large) extent. Expecting regulation to be done by philosopher kings is quite unrealistic.

So what matters is that influence over regulators be diffuse among competing constituencies, just as it would be nice if there were a competitive market for buying congresspeople (the masters of the regulators) as there was in the past.

Even the idea of having regulators captured by the customers of the industry they regulate is a bad idea, because this has happened in the past in various countries, and the result is that the regulators then strangle the industry they regulate because their controlling constituency usually just wants lower prices (e.g. rent control in various USA cities).

By: Blissex

Blissex — Thu, 01 Dec 2011 21:50:22 +0000

Statesmen (very few I know) know very well that most of politics including regulatory policy is about competing interests, and it matters a great deal not just to prevent any one of those interests from being a blocker, but to keep then in competition.

Ideally one of the interests is stronger than the others so there is no gridlock, but the others are strong enough that the dominant one is not too dominant.

Wise regulators know how to fight their political battles in the same way.

This is also the reason why the demise of unions has been both a top policy goal of business lobbies and a catastrophe for everybody else’s regulatory interests: unions raised money from members to purchase congresspeople in competition with the chambers of commerce.

Currently the chambers of commerce are monopsonists and congresspeople can only sell themselves to one business lobby or another, so that real regulatory policy debate happens only when there the chambers of commerce are divided into factions with opposing interests.

By: Sunset_Shazz

Sunset_Shazz — Fri, 04 Nov 2011 21:54:06 +0000

You’ve just made a great “public choice” argument for having many small banks in the system.

By: FifthDecade

FifthDecade — Thu, 03 Nov 2011 03:08:58 +0000

Q. How do US banks reduce the riskiness of assets they hold?
A. Sell the poisonous stuff to the Europeans.

By: Publius

Publius — Wed, 02 Nov 2011 21:45:23 +0000

Small banks aren’t necessarily unsophisticated. But they lack the scale necessary to engage in the labor-intensive regulatory arbitrage that Basel II and Basel III encourage.

But if the large banks, through Dodd-Frank, are able to impose significant fixed costs through the regulatory process, you will see the number of banks shrink, at the cost of greater systemic risk.

By: TimWorstall

TimWorstall — Wed, 02 Nov 2011 21:38:57 +0000

“The fact of the matter, however, is that all regulators are captured by banks.”

No. That’s a specific case. We should be looking at the general case.

All regulators are captured by their regulatees.

Interstate Commerce whatever it was, trucking regulation about Mexican trucks entering the US, airlines pre price deregulation….come along, James Buchanan got the3 Nobel for this point.

Any system of regulation will be colonised by those it is supposed to be regulating. Because they’re the only people with enough interest in the system of regulation to bother to try.

By: Donsig

Donsig — Wed, 02 Nov 2011 17:34:50 +0000

Well, Canadian banks certainly had global (read U.S.) expansions plans in the 90′s and wanted to merge to pursue them more effectively. But banks in Canada are unpopular and politicians weren’t totally dependent on them for fund raising, with the result that telling a bank to drop dead was a great move politically. So Paul Martin did exactly that. Why isn’t there a U.S. politician running against the financial sector? I think even the tea party and Occupy Wall Street share a hatred of it.

In short, it is not the regulators who are captured in the U.S., it’s the politicians.