DO INTEREST GROUPS UNDULY INFLUENCE BANK REGULATION?

It is well known that banks in countries around the world play a key role in allocating resources that are essential to economic growth and development. It is also well known that banks do not always allocate resources to the most productive projects based on both risk and return considerations. Thi...

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Bibliographic Details
Published in:Ifo DICE report 2013-12, Vol.11 (4), p.19
Main Authors: Barth, James R, Prabha, Apanard Penny, Lu, Wenling
Format: Article
Language:English
Subjects:
Banking industry
Banks
Campaign contributions
Commercial banks
Consumer organizations
Consumer protection
Economic crisis
Forbearance
Government
Influence
Insurance policies
Interest groups
Interest rates
International finance
Lobbying
Political power
Politics
Public interest
Public policy
Regulation
Regulation of financial institutions
Resource allocation
TARP funds
Wall Street Reform & Consumer Protection Act 2010-US
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Summary:It is well known that banks in countries around the world play a key role in allocating resources that are essential to economic growth and development. It is also well known that banks do not always allocate resources to the most productive projects based on both risk and return considerations. This was the case during the recent global financial crisis when some banks engaged in such excessively risky and less productive activities that they either failed or were bailed out. The severity of the crisis underscores the need for governments to put in place bank regulatory regimes that prevent such deplorable episodes. There is a growing body of evidence that finds that interest groups can exert sufficient influence so as to help explain both the enactment and elimination of bank regulations. For example, researchers document that the comparative political power of small banks relative to large banks -- rather than broader public interest considerations -- has shaped regulatory restrictions on branching in the US.
ISSN:2511-7815
2511-7823