IMF Paper Examines If Bank Lobbying in US Leads to Regulatory Capture
IMF published a working paper on whether and how bank lobbying in the United States can lead to regulatory capture and can have real consequences. The paper discusses the importance of bank lobbying in the United States, along with the motivations behind bank lobbying by outlining a conceptual framework of regulatory capture. It also examines the impact of lobbying on financial regulation and supervision by reviewing recent empirical evidence. The findings of the study are consistent with regulatory capture, which lessens the support for tighter rules and enforcement. While the findings should not be interpreted as a call for an outright ban of lobbying, they point in the direction of a need for rethinking the framework governing interactions between regulators and banks.
Among other things, the paper presents evidence on the effect of the rising political influence of the banking industry on the global financial crisis. It summarizes the recent, systematic evidence on the banking industry capturing the government through its lobbying activities. The focus of the paper is on financial regulation, supervision, and outcomes during the global financial crisis. The overall findings are consistent with a regulatory capture view of bank lobbying. This in turn allows riskier practices and worse economic outcomes. The evidence provides insights into how the rising political power of banks in the early 2000s propelled the financial system and the economy into crisis. The findings point in the direction of a need for rethinking the framework governing interactions between regulators and the industry, including their lobbyists.
The authors stressed on two avenues that they believe are crucial to contain regulatory capture at more “acceptable” levels—that is, levels at which the benefit of regulation exceeds the cost of regulatory capture:
- The first avenue is to enhance the transparency of regulatory decisions by mandating the ex-post disclosure of how they are made. The systematic, ex-post disclosure of information on regulatory decisions would increase regulators’ accountability both toward the general public and toward other (potentially competing) parties.
- The second avenue is about placing checks and balances in the decision-making process at regulators. Implementing structures of checks and balances involving the less politically powerful interest groups would induce a re-balance of the dominant position currently held by the banking industry.
Related Link: Working Paper
Keywords: Americas, US, Banking, Bank Lobbying, Regulatory Capture, Regulation and Supervision, Research, Deregulation in US, IMF
Previous ArticleFSB Publishes Directory of Crypto-Asset Regulators
FINMA Approves Merger of Credit Suisse and UBS
The Swiss Financial Market Supervisory Authority (FINMA) has approved the takeover of Credit Suisse by UBS.
BOE Sets Out Its Thinking on Regulatory Capital and Climate Risks
The Bank of England (BOE) published a working paper that aims to understand the climate-related disclosures of UK financial institutions.
OSFI Finalizes on Climate Risk Guideline, Issues Other Updates
The Office of the Superintendent of Financial Institutions (OSFI) is seeking comments, until May 31, 2023, on the draft guideline on culture and behavior risk, with final guideline expected by the end of 2023.
APRA Assesses Macro-Prudential Policy Settings, Issues Other Updates
The Australian Prudential Regulation Authority (APRA) published an information paper that assesses its macro-prudential policy settings aimed at promoting stability at a systemic level.
BIS Paper Examines Impact of Greenhouse Gas Emissions on Lending
BIS issued a paper that investigates the effect of the greenhouse gas, or GHG, emissions of firms on bank loans using bank–firm matched data of Japanese listed firms from 2006 to 2018.
HMT Mulls Alignment of Ring-Fencing and Resolution Regimes for Banks
The HM Treasury (HMT) is seeking evidence, until May 07, 2023, on practicalities of aligning the ring-fencing and the banking resolution regimes for banks.
MFSA Sets Out Supervisory Priorities, Issues Reporting Updates
The Malta Financial Services Authority (MFSA) outlined its supervisory priorities for 2023
German Regulators Issue Multiple Reporting Updates for Banks
Deutsche Bundesbank published the nationally deactivated validation rules for the German Commercial Code (HGB) users on the taxonomy 3.2, which became valid from December 31, 2022
BCBS Report Examines Impact of Basel III Framework for Banks
The Basel Committee on Banking Supervision (BCBS) published results of the Basel III monitoring exercise based on the June 30, 2022 data.
PRA Consults on Prudential Rules for "Simpler-Regime" Firms
Among the recent regulatory updates from UK authorities, a key development is the first-phase consultation, from the Prudential Regulation Authority (PRA), on simplifications to the prudential framework that would apply to the simpler-regime firms.