Regulatory Capture in Banking
IMF Working Papers, January 1, 2006
Source details
- Canonical URL
- Regulatory Capture in Banking
Other formats
Bibliographic details
- Published: January 1, 2006
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451862942.001
Summary
- Banks will want to influence the bank regulator to favor their interests, and they typically have the means to do so.
- 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.
- Differences in the regulatory regime across jurisdictions may persist because each adapts its regulations to suit its dominant incumbent institutions.
- Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.
Key findings and analytical points
- Regulatory capture can coexist with stringent regulation: captured regulators may enact very tight, costly prudential requirements.
- Tight prudential requirements by a captured regulator can serve to reduce negative spillovers of risk-taking by weaker banks.
- Cross-jurisdictional regulatory differences may persist because regulatory regimes are adapted to suit dominant incumbent institutions in each jurisdiction.
Policy implications and considerations
- Recognize that regulatory capture does not always lead to lax oversight; capture can lead to costly, stringent regulation intended to contain systemic spillovers.
- Consider how dominant incumbent institutions shape national regulatory adaptations, potentially entrenching heterogeneity across jurisdictions.
- Policy responses should account for the possibility that regulatory design may be influenced by incumbent bank interests in ways that produce stricter prudential regimes rather than weaker ones.
Subjects and keywords
- Subject: Bank regulation, Banking, Capital adequacy requirements, Deposit insurance, Financial regulation and supervision
- Keywords: bank, capitalized bank, central bank, interest rate, WP
International Monetary Fund. "Regulatory Capture in Banking", IMF Working Papers 2006, 034 (2006), accessed 9/10/2026, https://doi.org/10.5089/9781451862942.001
Content in this bundle
- Regulatory Capture in Banking, by Daniel C. Hardy; IMF Working Paper 06/34; January 1, 2006