Too much regulation?
| Published date | 01 April 2001 |
| DOI | https://doi.org/10.1108/eb025088 |
| Pages | 350-360 |
| Date | 01 April 2001 |
| Author | Geoffrey E. Wood |
| Subject Matter | Accounting & finance |
Journal of Financial Regulation and Compliance Volume 9 Number 4
Journal of Financial Regulation
and Compliance. Vol. 9. No. 4,
2001, pp. 350-, 360
© Henry Stewart Publications,
1358-1988
Too much regulation?
Geoffrey E. Wood
Received: 18th May, 2001
City University Business School, Frobisher Crescent, Barbican Centre, London EC2Y 8HB;
tel: +44 0(20) 7477 8740; fax: +44 0(20) 7477 8881; e-mail: G. E. Wood@city. ac. uk
Geoffrey Wood is currently Professor of
Economics at City University London. He
has also taught at the University of War-
wick, and has been with the research staff
of both the Bank of England and the Fed-
eral Reserve Bank of St. Louis. He is the
co-author or co-editor of ten books, which
deal with, among other subjects, finance of
international trade, monetary policy and
bank regulation. Among his professional
papers are studies of exchange rate beha-
viour, interest rate determination, monetary
unions, tariff policy and bank regulation. He
has also acted as an adviser to the New
Zealand Treasury. He is a Managing Trus-
tee of the Institute of Economic Affairs and
of the Wincott Foundation.
ABSTRACT
This paper considers
what purposes regulation
and supervision of financial institutions are
designed to serve. Historical experience with
regulation and supervision is considered,
and it
is argued on the basis
of that examination that
a fairly `light touch' in regulation is likely to
achieve
the objectives
that governments
and citi-
zens require regulation to achieve.
Accordingly,
the paper concludes
that when regulation is
evaluated and compared against unregulated
systems,
one should be careful to compare
falli-
ble regulation with fallible markets, rather than
implicitly assuming
regulation is perfect. Other-
wise over-regulation will result.
INTRODUCTION
Regulation is costly. The costs, of course,
extend well beyond the costs of running
regulatory agencies and compliance depart-
ments. Most important, regulation acts as a
barrier to innovation and to new entry.
There is almost no industry that is not sub-
ject to some degree of regulation. But it is
indisputable that regulation of the financial
service industry is both intense and exten-
sive. George Benston, for example, has
observed that in the USA the only industry
regulated more than the financial services is
medicine. ' Since medicine is largely a
nationalised industry in Britain, the same
comparison can not be made here; prob-
ably, therefore, in Britain, there is no
industry more regulated than financial ser-
vices. In view of this, it seems appropriate
to reconsider regulation, to consider why
financial services are regulated and thus to
open up the question of whether perhaps
there is more regulation than is necessary
to achieve the desired goals. That is the
aim of this paper. And its focus is the regu-
lation of banks.
The structure of the paper is as follows.
First, there is analysis of what is meant by
regulation. Then the paper discusses
just
what it is that has led to banks being seen
as particularly requiring regulation. This
leads on to a reconsideration of the regula-
tions put in place to deal with these issues.
Next there is discussion and evaluation of
regulation and supervision in practice.
There is then a brief comment on the regu-
lation of financial institutions other than
banks. This is followed by the conclusion.
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