Financial Accounting Theory

The statement on “More regulation is better than less” reflects the impact a financial institution experiences under certain circumstances. Firstly, we look at both pros and cons on why financial regulations were implemented.

Financial markets and institutions help to shape the corporate and financial structure of the country. Therefore to keep the economy of the country stable, regulations are implemented.

In this essay I will discuss a few terms and how their relationships apply between regulation and market structures, as well as how regulation policies affect the market.

Likewise, "Enlightened Regulatory Capture" by David Thaw, contributed alternative views of the role of interest groups and exterior actors in the public policy making process. This will be a beneficial component of literature because it will express how the regulatory process must, inevitably, have active outside players to run effectively. When addressing the issues of regulatory capturing in the industry and executive agencies, it will be important to consider balancing the role of outside players.

Regulation is a major activity at all levels of government. As society becomes more complex, regulations must grow and evolved to meet the demands of a developing society. Concentrating more on the role of regulation, it can be noted that it is a system that helps protect individuals from one another. So from buyers to sellers; from employee to employer; tenants to landlords, and so on. Regulations is also implemented to alleviate human suffering and promote overall welfare. For instance, aid in the form of Social Security and to Veterans, natural disaster relief, regulation of pollution and toxins, as well as temporary assistance for the unemployed. Last, and most importantly regulation is implemented to minimize and eliminate corruption and abuse of power by government agencies or officials. (Book Source) Taking into account the terms and ideologies stated above, it is easily understood why, we as individuals have decided for so many years, to abide by this social contract with our government. We gain the most benefit from this quid pro quo relationship.

“A regulation is a rule or law intended on governing the conduct of people. The term economic regulation refers to taxes, subsidies as well as the explicit legislative and administrative controls over rates, entry, and many other facets of economic activity.” (Posner, R.A. “Theories of Economic Regulation”, Bell Journal of Economics, 1974).

The issue surrounding high levels of fraternization between the agency and the industry is the risk of acting in ways that threaten public interest. If the firms within the industry are too influential in the formation of regulations, their interests outweigh that of the public. It is a common concern that this capturing could lead to policies that hinder competition to the benefit of a particular firm or give one firm a substantial advantage in the market. It is evident that regulatory capture is a failure in policy making because the purpose of regulation is to distinguish between programs that regulate and those that promote business enterprise. If the industry is promoted in the regulation process, there is a clear conflict of interest and evidence of

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government regulation was defined by Grajzl & Murrell (2007) as the study of “comparative regulatory design,” a topic rarely discussed amongst academics, economists, or politicians alike. While government regulation is discussed broadly across many different fields, rarely is it analyzed in direct comparison to self-regulation. However, some academic papers have discussed this topic of “comparative regulatory design”: Gehrig & Jost (1995), Segerson & Miceli (1998), and Stefan's (2003), to name a few. These articles have all taken a different perspective of analysis and in the end concluded that self-regulation, when applied properly, can be far more effective than any form of government regulation. In their paper titled “Quacks, Lemons, and Self-Regulation: A Welfare Analysis,” Gehrig & Jost (1995) make the observation that if the information regarding an environmental issue is relatively simple and widespread, it may be best to leave the regulatory powers up to the government. If, on the other hand, the science and knowledge behind the issue is complex and limited, a self-regulatory body within the industry would be far better suited in resolving the environmental damage. In other words, the decision regarding which political body should be placed in charge of resolving an environmental issue should be determined by whichever body holds the most knowledge regarding the issue. Following these guidelines, the self-regulatory bodies should

Porket, J. L. “The Pros and Cons of Government Regulation.” Institute of Economic Affairs. 23 Jan. 2003, pp. 1–20., iea.org.uk/wp-content/uploads/2016/07/upldbook341pdf.pdf. Accessed 10 Apr. 2017.

The work of Marver Bernstein in Regulating Business by Independent Commission outlines the idea of the “life cycle” of regulatory commissions as an explanation for regulatory capture. He explains that the evolution of growth in regulatory agencies ends with an “old age stage” that is characterized by the “loss of vitality” and “seeking to maintain the status quo,” which then results in the agencies needing the support of the industry in order to maintain, whether financially or politically, the status quo. Likewise, the work of George Stigler and Claire Friedland helps explain how the mutually beneficial relationships built between the regulatory

Economic regulation is defined as a type of government regulation that determines conditions or standards on entry of firms into the industry. Economic regulation shall also include the regulation of financial firms. However, economic regulation is not the only governmental regulation established. The other type of regulation, called social regulation, includes environmental controls, restrictions on labeling and advertising as well as health and safety regulations. Social regulation involves the correction of externalities. However, there are many arguments about the exact economic rationale for such social regulation. One reason which sets economic regulation apart from social regulation is that the two have followed very different paths in recent history. There has been a tremendously increasing expansion of social

The purpose of this paper is to show that the “regulatory capture” has played a role not easily measurable in causing the global financial crisis. To illustrate this, the first step will to describe the “regulatory capture” in its three possible qualifications; then, I will explain, providing some examples, how each of these categories played a possible role in posing the basis for the financial crisis. While illustrating the different forms of capture I will present some questions that leave space to different answers. Finally, I will conclude that the regulatory capture have surely played a role in generating the crisis, but it is not possible to evaluate the effective role it had in causing it.

By: Charn Gek Cheng, Chiang Soo Ling, Kummar Sokali Muthu Mogan, Lee Siew Fen Samantha

At the same time, the regulators should be as transparent as possible and fully accountable. The accountability and transparency of the regulator will increase the credibility of the regulator and in-turn benefit the regulated entity. Types of Financial Regulation Financial regulation in a country can be done either by a single body called a single regulator or multiple bodies co-existing and working together or in a hierarchy of entities known as multiple regulators. A regulator whether single or multiple does not determine the economic standing of a country or its financial strength. Many developed countries of the world follow either the system of single regulation or multiple regulations. Often in times of economic crisis or financial boom in the country’s economy the government of the nation will review its regulatory system and choose to expand or close down some of its regulatory bodies.