Making Good Financial Regulation

How can we mitigate the risk that the financial regulatory process may unduly favour narrow industry interests at the expense of the public? The global financial crisis brought the close interaction between policymakers and financial industry players in the regulation of financial markets under the spotlight, and highlighted the risk that this proximity may distort the content of regulatory policies away from the public interest. However, while references to the concept of "regulatory capture" have permeated much of the discourse on financial regulation, a debate regarding policy measures which could be introduced to strengthen the integrity of the policymaking process in finance has struggled to emerge. This publication makes a contribution towards addressing this gap. It combines the perspectives of academics, former regulators, financial industry practitioners, representatives of consumer groups and non-financial end users, and policymakers from outside finance, to discuss the aspects of the policymaking process in finance which may divert the content of regulatory policies away from the public interest, as well as available policy solutions to mitigate this risk.
"Driven by hubris, greed and stupidity bankers led the charge off the cliff. But where were the regulators? Why did they not see it coming? Why did they not prevent it? Why did they trust bankers to know what was best for banking? In short, how could regulators have been so dumb as to believe that bankers were so smart? This book supplies answers to these questions. It explores the ways in which regulators can sometimes be captivated, co-opted and conned by those they regulate. Best of all, it suggests a number of actionable policies to mitigate the problem." Robert Jenkins (external member of the Financial Policy Committee of the Bank of England and Adjunct Professor, Finance at London Business School)