The Language of Rules: Textual Complexity in Banking Reforms

44 Pages Posted: 28 Oct 2019

See all articles by Zahid Amadxarif

Zahid Amadxarif

Bank of England

James Brookes

Bank of England

Nicola Garbarino

Bank of England

Rajan Patel

Bank of England

Eryk Walczak

Bank of England

Date Written: October 24, 2019

Abstract

The banking reforms that followed the financial crisis of 2007–08 led to an increase in UK banking regulation from almost 400,000 to over 720,000 words, and to concerns about their complexity. We define complexity in terms of the difficulty of processing linguistic units, both in isolation and within a broader context, and use natural language processing and network analysis to calculate complexity measures on a novel dataset that covers the near universe of prudential regulation for banks in the United Kingdom before (2007) and after (2017) the reforms. Linguistic, ie textual and network, complexity in banking regulation is concentrated in a relatively small number of provisions, and the post-crisis reforms have accentuated this feature. In particular, the comprehension of provisions within a tightly connected ‘core’ requires following long chains of cross-references.

Keywords: complexity, CRR, natural language processing, networks, regulation, supervision

JEL Classification: D85, E58, G18, G28, K23

Suggested Citation

Amadxarif, Zahid and Brookes, James and Garbarino, Nicola and Patel, Rajan and Walczak, Eryk, The Language of Rules: Textual Complexity in Banking Reforms (October 24, 2019). Bank of England Working Paper No. 834, October 2019. Available at SSRN: https://ssrn.com/abstract=3475418 or http://dx.doi.org/10.2139/ssrn.3475418

Zahid Amadxarif (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

James Brookes

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Nicola Garbarino

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Rajan Patel

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Eryk Walczak

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

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