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Public Choice

, Volume 180, Issue 1–2, pp 145–164 | Cite as

Banking regulation, regulatory capture and inequality

  • G. P. Manish
  • Colin O’ReillyEmail author
Article

Abstract

Regulation of the banking and finance industry may lead to a more equal distribution of income if regulators pursue goals in the public interest. Alternatively, the economic theory of regulation predicts that regulatory and supervisory processes may be captured by the banking industry, leading to policies that promote the industry’s interests. The liberalization of the banking and finance sector since the 1980s has produced more intense banking supervision and prudential regulation. In this study we find that banking supervision regulation is associated with greater income inequality. These findings are consistent with the economic theory of regulation. We interpret these results as evidence that regulatory capture in the banking and finance industry can have pernicious effects on the distribution of income.

Keywords

Regulation Inequality Regressive Regulatory capture Liberalization Banking supervision 

JEL Classification

D31 D63 D72 D73 L51 F65 

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Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2018

Authors and Affiliations

  1. 1.Sorrell College of Business, Manuel Johnson Center for Political EconomyTroy UniversityTroyUSA
  2. 2.Heider College of Business, Institute for Economic InquiryCreighton UniversityOmahaUSA

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