Regulatory Capture in Banking

25 Pages Posted: 23 Mar 2006

See all articles by Daniel Hardy

Daniel Hardy

International Monetary Fund (IMF)

Date Written: January 2006


Banks will want to influence the bank regulator to favor their interests, and they typically have the means to do so. It is shown that such 'regulatory capture' in banking does not imply ineffectual regulation; a 'captured' regulator may impose very tight, costly prudential requirements to reduce negative spillovers of risk-taking by weaker banks. In these circumstances, differences in the regulatory regime across jurisdictions may persist because each adapts its regulations to suit its dominant incumbent institutions.

Keywords: Banking, financial regulation, regulatory capture, capital requirements, regulatory competition

JEL Classification: G210, G280, H730, K230, L510

Suggested Citation

Hardy, Daniel, Regulatory Capture in Banking (January 2006). IMF Working Paper No. 06/34, Available at SSRN:

Daniel Hardy (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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