Leading scholars from across the social sciences present empirical evidence that the obstacle of regulatory capture is more surmountable than previously thought.

In this paper, we discuss whether and how bank lobbying can lead to regulatory capture and have real consequences through an overview of the motivations behind bank lobbying and of recent empirical evidence on the subject. Overall, the findings are consistent with regulatory capture, which lessens the support for tighter rules and enforcement. This in turn allows riskier practices and worse economic outcomes. The evidence provides insights into how the rising political power of banks in the early 2000s propelled the financial system and the economy into crisis. While these findings should not be interpreted as a call for an outright ban of lobbying, they point in the direction of a need for rethinking the framework governing interactions between regulators and banks. Enhanced transparency of regulatory decisions as well as strenghtened checks and balances within the decision-making process would go in this direction.

Banks will want to influence the bank regulator to favor their interests, and they typically have the means to do so. It is shown that such "regulatory capture" in banking does not imply ineffectual regulation; a "captured" regulator may impose very tight, costly prudential requirements to reduce negative spillovers of risk-taking by weaker banks. In these circumstances, differences in the regulatory regime across jurisdictions may persist because each adapts its regulations to suit its dominant incumbent institutions.

Examines the law and policy of financial regulation using a combination of conceptual analysis and strong empirical research.

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)