Measuring Regulatory Complexity

Abstract

Despite a heated debate on the complexity of financial regulation, a comprehensive framework to study regulatory complexity is lacking. We propose one inspired by the analysis of algorithmic complexity in computer science. We use this framework to distinguish different dimensions of complexity, classify existing measures, develop new ones, compute them on two examples - Basel I and the Dodd-Frank Act - and validate them using novel experiments. Our framework offers a quantitative approach to the policy trade-off between regulatory complexity and precision. Our toolkit is freely available and allows researchers to measure the complexity of any normative text and test alternative measures.

Keywords: Financial Regulation, Capital Regulation, Regulatory Complexity, Basel Accords

JEL Classification: G18, G28, G41