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Regulatory Capture in Financial Supervision

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Abstract

Regulatory capture occurs when an industry has an excessive influence over the regulatory or supervisory processes. In the wake of the financial crisis of 2007-08, officials and academics could only observe that the prudential oversight of the financial industry has failed. This failure was soon attributed to regulatory capture and brought academics and officials to consider other channels of influence than traditional lobbying or corruption. With both theoretical and practical approaches, this chapter attempts to define regulatory capture, its normalization among the regulatory and supervisory framework and finally provides examples of the existing means regulators have to prevent it.

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Notes

  1. 1.

    The Guardian, Carmen Segarra, the whistleblower of Wall Street, 5 October 2014 http://www.theguardian.com/commentisfree/2014/oct/05/carmen-segarra-whistleblower-wall-street-federal-reserve.

  2. 2.

    NY Times Dealbook, Suit Revives Goldman Conflict Issue, 10 October 2013.

  3. 3.

    The FCIC has been mandated to examine the causes of the financial crisis. A report was published in 2011.

  4. 4.

    It is, for instance, the case for the supervision of the pharmaceutical, nuclear or finance industries.

  5. 5.

    5 U.S.C. § 553(c).

  6. 6.

    Cressey quotes in Ashforth and Anand (2003).

  7. 7.

    Kwak, 30 September 2014, How not to regulate, The Atlantic. http://www.theatlantic.com/business/archive/2014/09/how-not-to-regulate/380919/.

  8. 8.

    The European Commission, DG Migration and Home Affairs http://ec.europa.eu/dgs/home-affairs/what-we-do/policies/organized-crime-and-human-trafficking/corruption/index_en.htm.

  9. 9.

    Guidelines (EU) 2015/[XX*] of the European Central Bank of 12 March 2015, Chapter IV Rules on the acceptance of gift and hospitality, Article 10 Prohibition on receiving advantages https://www.ecb.europa.eu/ecb/legal/pdf/en_ecb_2015_11__signed_r_f.pdf.

  10. 10.

    An executive order signed by President Obama in January 2009.

  11. 11.

    Kwak, 30 September 2014, How not to regulate, The Atlantic. http://www.theatlantic.com/business/archive/2014/09/how-not-to-regulate/380919/.

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Poulain, M. (2017). Regulatory Capture in Financial Supervision. In: Douady, R., Goulet, C., Pradier, PC. (eds) Financial Regulation in the EU. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-44287-7_6

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  • DOI: https://doi.org/10.1007/978-3-319-44287-7_6

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