A Stiglerian View on Banking Supervision

Posted: 18 Nov 2004

See all articles by Friedrich Heinemann

Friedrich Heinemann

ZEW – Leibniz Centre for European Economic Research; University of Heidelberg - Alfred Weber Institute for Economics

Martin Schüler

Centre for European Economic Research (ZEW)

Abstract

The system of banking supervision in Europe is undergoing substantial reforms. According to Stigler's capture theory regulation often follows the preferences of producers. Therefore, the interests of the financial industry might be a major driving force for the ongoing supervisory reform debate. This paper identifies possible interests of the regulated industries: Either they might favour strict supervision to create barriers for entry and thus to reduce competitive pressure in their market. Or they might use their political influence to press for a lax and low-cost supervisory system. A cross-country data base on supervisory systems and financial structure allows the application of a three-step testing procedure. It turns out that the private interest view on regulation is indeed relevant and that the data is more compatible with a preference for laxity than with a barriers to entry view.

Keywords: Banking regulation and supervision, capture theory, political economy

JEL Classification: G28

Suggested Citation

Heinemann, Friedrich and Schüler, Martin, A Stiglerian View on Banking Supervision. Available at SSRN: https://ssrn.com/abstract=620444

Friedrich Heinemann

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

HOME PAGE: http://www.zew.de

University of Heidelberg - Alfred Weber Institute for Economics ( email )

Grabengasse 14
Heidelberg, D-69117
Germany

Martin Schüler (Contact Author)

Centre for European Economic Research (ZEW) ( email )

Postfach 103443
Mannheim, D-68034
Germany
+49/621/1235-148 (Phone)
+49/621/1235-223 (Fax)

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