Chapter of Book
regulatory capture, financial regulation
Although it sometimes seems that financial regulatory agencies have been entirely captured by the larger players in the industry they regulate, a closer examination reveals that a variety of factors contribute to policy outcomes in this arena. Agencies have different agendas and stakeholders, and banks often perform quasi-governmental roles that blur the line between the captors and the captured. The real danger is that public policy can be distorted as a result of excessive influence by one set of interests at the expense of others. This danger is best thwarted or at least mitigated through the application of a range of institutions and processes, ranging from external checks on agency action to a strengthening of institutions designed to represent interests that the regulated industry itself is unlikely to promote. Internal checks that might provide incentives for more public-oriented actions on the part of industry participants are also relevant.
Lawrence G. Baxter, Understanding Regulatory Capture: An Academic Perspective from the United States, in The Making of Good Financial Regulation: Towards a Policy Response to Regulatory Capture 31-39 (Stefano Pagliari, ed., 2012)