A literature review on complexity of financial regulation
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School of Business |
Master's thesis
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Authors
Date
2019
Department
Major/Subject
Mcode
Degree programme
Economics
Language
en
Pages
64+0
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Abstract
Since the financial crisis, which finally aroused the public vigilance against inefficient regulation, there have been remarkable literatures on over-complexity and several rounds of reform in financial regulation. Yet, some relevant questions still remain unanswered. This paper, in the form of literature review, summaries the most critical problems on complexity and the efforts have been made so far to solve them. Started from Introducing the importance of complexity through regulation and crises, the complexity of financial regulation is presented by time first, showing complexity significantly expanded after Basel II. Next several comparisons between complex and simple regulatory rules reveal the its incapability. Then incentives behind complexity, three economic theories, and three typical methods of quantitative analysis are discussed sequentially, implying over-complexity is self-filling and detrimental. And it is imperative for regulators to find a simple and transparent replacement. While some plausible solutions have been tried, the validity of most is limited, among which market-based approaches seems to be most promising. Looking further, complexity might mitigate in the form of regulatory rules, it, however, will pervade the whole regulation framework by more reliance on supervisory discretion.Description
Thesis advisor
Välimäki, JuusoKeywords
complexity, financial regulation, Basel Accord, simplification