Encyclopedia of Law and Economics

2019 Edition
| Editors: Alain Marciano, Giovanni Battista Ramello

Financial Regulation

  • Hadar Yoana JabotinskyEmail author
Reference work entry
DOI: https://doi.org/10.1007/978-1-4614-7753-2_636

Abstract

Financial markets do have special attributes which require regulatory intervention. They are complex markets which are abundant with asymmetric information, moral hazard, externalities, and agency problems. They are markets in which products mature over a long period of time causing a need for regulatory monitoring which is exacerbated by consumer demand for regulation and economies of scale in monitoring. Moreover, the financial firms in these markets are crucially important from a systemic point of view to the health of the economy in general. Having said all that, financial regulation is costly. Regulation in general should only be enacted if the costs of implementing it are lower than the benefits derived from what it seeks to achieve. Regulation is not about quantity but about quality. The “right” kind of regulation gives the financial institutions the incentives to act in a way which enhances social welfare and reduces market failures.

This is a preview of subscription content, log in to check access.

References

  1. Acemoglu D, Ozdaglar A, Tahbaz-Salehi A (2015) Systemic risk and stability in financial networks. Am Econ Rev 105(2):564–608CrossRefGoogle Scholar
  2. Akerlof G (1970) The market for lemons: quality uncertainty and the market mechanism. Q J Econ 84(3):488–500CrossRefGoogle Scholar
  3. Armour J, Awrey D, Davies PL, Enriques L, Gordon JN, Mayer C, Payne J (2016) Principles of financial regulation. Oxford University Press, OxfordCrossRefGoogle Scholar
  4. Baldwin R, Cave M, Lodge M (2012) Understanding regulation. Oxford University Press, OxfordGoogle Scholar
  5. Bar-Gill O (2004) Seduction by plastic. Northwest Univ Law Rev 98:1373–1375Google Scholar
  6. Becker GS (1983) A theory of competition among pressure groups for political influence. Q J Econ 98(3):371–400CrossRefGoogle Scholar
  7. Bernstein MH (1955) Regulating business by independent commissionGoogle Scholar
  8. Brunnermeier M, Crocket A, Goodhart C, Hellwig M, Persaud AD, Shin H (2009) The fundamental principles of financial regulation. 11 Geneva report on the world economyGoogle Scholar
  9. Campbell JY (2016) Richard T. Ely lecture restoring rational choice: the challenge of consumer financial regulation. Am Econ Rev 106(5):1–30CrossRefGoogle Scholar
  10. Cecchetti SG (1999) The future of financial intermediation and regulation: an overview. In: ‘Why and How Do We Regulate?’ current issues in economics and finance. Federal Reserve Bank of New York, NYGoogle Scholar
  11. Coase RH (1960) The problem of social cost. J Law Econ 3:1–44CrossRefGoogle Scholar
  12. Committee on Capital Markets Regulation (2009) The global financial crisis. A plan for regulatory reform http://www.europarl.europa.eu/meetdocs/2009_2014/documents/d-us/dv/d-us_tgfc-ccmr_executive_summa/d-us_tgfc-ccmr_executive_summary.pdf
  13. Devenow A, Welch I (1996) Rational herding in financial economics. Eur Econ Rev 40:603–615CrossRefGoogle Scholar
  14. Dodd R (2002) Special policy report 12: the economic rationale for financial market regulation. Derivatives Study Center, Washington, DCGoogle Scholar
  15. Enriques L (2014) Regulators’ response to the current crisis and the upcoming reregulation of financial markets: one reluctant regulator’s view. Univ Pennsylvania J Int Law 30:1147–1155Google Scholar
  16. Enriques L, Hertig G (2011) Improving the governance of financial supervisors. Eur Bus Organ Law Rev 12:357–378CrossRefGoogle Scholar
  17. Garber PH (1990) Famous first bubbles. J Econ Perspect 4(2):35–54CrossRefGoogle Scholar
  18. Hayek F (1945) The use of knowledge in society. Am Econ Rev 35(4):519–530Google Scholar
  19. Hendrickson JM (2011) Regulation and instability in U.S commercial banking, a history of crises Palgrave. Macmillan studies in banking and financial institutions. Palgrave Macmillan, BasingstokeCrossRefGoogle Scholar
  20. Jabotinsky HY (2017) The federal structure of financial supervision: a story of information-flow. Stanf J Law Bus Finance 22:53–84Google Scholar
  21. Kurlat P, Veldkamp L (2015) Should we regulate financial information? J Econ Theory 158:697–720CrossRefGoogle Scholar
  22. Llewellyn D (1999) The economic rationale for financial regulation. FSA occasional papers in financial regulationGoogle Scholar
  23. Peltzman S (1976) Toward a more general theory of regulation. J Law Econ 19:211CrossRefGoogle Scholar
  24. Reinhart CM, Rogoff KS (2009) This time is different, eight centuries of financial folly. Princeton University Press, PrincetonCrossRefGoogle Scholar
  25. Romano R (2014) For diversity in the international regulation of financial institutions: critiquing and recalibrating the Basel architecture. Yale J Regul 31:1–76Google Scholar
  26. Sharpe WF (1970) Stock market price behavior. A discussion. J Financ 25(2):418–420Google Scholar
  27. Stigler GJ (1971) The theory of economic regulation. Bell J Econ Manag Sci 1:3–21CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2019

Authors and Affiliations

  1. 1.Faculty of LawHebrew University of JerusalemJerusalemIsrael