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date: 07 July 2020

Abstract and Keywords

This article introduces the concept of a regulation-induced financial crisis and uses it to explain how offshore regulatory competition can either reinforce or attenuate inefficient or anti-egalitarian elements of incentive-conflicted banking regulation in individual countries. Regulatory competition does this mainly by inducing increases and decreases in the banking business a country's banks can capture. With technological change intensifying the influence of offshore regulators, mis-steps promise to come to a boil sooner, but may still have severe and long-lasting effects on ordinary taxpayers. The article exemplifies the process by analyzing how regulatory competition simultaneously encouraged incentive-conflicted supervisors to outsource much of their due discipline to credit rating firms and encouraged banks to securitize their loans in ways that pushed credit risks into corners of the universe where supervisors and credit ratings firms could not see them.

Keywords: regulation-induced financial crisis, offshore regulatory competition, banking regulation

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