A Stiglerian View on Banking Supervision
36 Pages Posted: 27 Jan 2003
Date Written: October 2002
The system of banking supervision in Europe is undergoing substantial reforms. According to Stigler's capture theory regulation often follows the preferences of producers. Therefore, the interests of the financial industry might be a major driving force for the ongoing supervisory reform debate. This paper identifies possible interests of the regulated industries: Either they might favour strict supervision to create barriers for entry and thus to reduce competitive pressure in their market. Or they might use their political influence to press for a lax and low-cost supervisory system. A cross-country data base on supervisory systems and financial structure allows the application of a three-step testing procedure. It turns out that the private interest view on regulation is indeed relevant and that the data is more compatible with a preference for laxity than with a barriers to entry view.
Keywords: banking regulation and supervision, capture theory, political economy
JEL Classification: G28
Suggested Citation: Suggested Citation