Measuring Regulatory Complexity

55 Pages Posted: 24 Jan 2020 Last revised: 31 Jan 2022

See all articles by Jean-Edouard Colliard

Jean-Edouard Colliard

HEC Paris - Finance Department

Co-Pierre Georg

University of Cape Town; Deutsche Bundesbank

Multiple version iconThere are 2 versions of this paper

Date Written: January 26, 2022

Abstract

Despite a heated debate on the perceived increasing 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 complexity measures, develop new ones, compute them on two examples—Basel I and the Dodd-Frank Act—and validate them using novel experiments that involve the computation of risk-weighted assets under various rules. Our framework offers a quantitative approach to the policy trade-off between the precision and the complexity of regulation. The toolkit we develop is freely available and allows researchers to measure the complexity of any normative text as well as test alternative measures of complexity.

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

JEL Classification: G18, G28, G41

Suggested Citation

Colliard, Jean-Edouard and Georg, Co-Pierre, Measuring Regulatory Complexity (January 26, 2022). HEC Paris Research Paper No. FIN-2020-1358, Available at SSRN: https://ssrn.com/abstract=3523824 or http://dx.doi.org/10.2139/ssrn.3523824

Jean-Edouard Colliard (Contact Author)

HEC Paris - Finance Department ( email )

France

Co-Pierre Georg

University of Cape Town ( email )

Private Bag X3
Rondebosch, Western Cape 7701
South Africa

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

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