A Preliminary Look at Regulatory Structures for Financial Services

Abstract:     
How nations regulate financial services (banking, insurance, and securities) has changed dramatically in the past decade as 16 nations, including the United Kingdom, Germany and Japan, have consolidated their financial regulatory agencies into a single national agency. One of the nations resisting this trend, however, is the United States.

U.S. resistance is due in part to a concern that the costs of such consolidation will exceed its benefits. While numerous studies have been conducted comparing the costs of various single financial regulators around the world with the United States regime, none of these studies has controlled for differences in culture and regulatory intensity between the United States and these other countries. Thus, it is not clear if the United States would achieve substantial cost savings if it merely consolidated its financial regulators.

My paper attempts to address this problem by examining the costs of six different regulatory structures used by the states within the United States, which range from separate agencies for each financial services industry to a single agency that regulates all financial services and organizes its departments based on regulatory objectives such as prudential concerns and market conduct objectives. Examining how the states within the United States regulate financial services eliminates some of the problems, like differences in regulatory intensity and culture, which arise when one compares how different countries regulate financial services. My paper offers a way of filtering out these differences and focusing on whether a single regulatory agency regulates more efficiently than multiple agencies.

Keywords: financial services, financial regulation, banking, securities, insurance

JEL Classifications: G10, G18, G20, G21, G22, G28

Working Paper Series