How Much Regulation of Financial Services Do We Really Need?
Much of the rationale for regulating financial services is weak, but some regulation will always be necessary
George
J. Benston is professor of finance, accounting, and economics in the Goizueta
Business School and professor of economics in the college of arts and
sciences at Emory University. He is a founder and current member of the
Shadow Financial Regulatory Committee and a member of the Financial Economists’
Roundtable. Benston has taught at the University of Rochester, University
of Chicago, University of California at Berkeley, and other schools. He
has a Ph.D. in finance and economics from the University of Chicago, an
MBA from New York University in accounting, and a BA from Queens College.
He has published extensively and has consulted for and worked with the
principal U.S. banking regulatory agencies and testified before several
committees of the U.S. Congress and regulatory bodies.
This paper is based on an Adam Smith award address to the NABE Annual Meeting, September 30, 2002.
Market solutions in the financial services market, as in the rest of the economy, are preferable to government solutions. When firms fail, there rarely is any reason for taxpayers to pick up the tab. Banks, however, are treated differently. What singles them out as appropriate subjects of regulation? Most of the answers do not hold water. However, there are compelling reasons for some financial regulation that can be addressed by “structured early intervention and resolution” and on-site examination.