Continuing my previous thoughts on last week’s Atlanta Federal Reserve Financial Markets Conference, I thought I’d cover another of the conference’s big themes: the efficiency of the regulatory system.
Two things matter to a well-functioning regulatory system: the complexity in the regulation and the political system that backs up that regulation. Political systems matter because of the potential influence on a majority party. Democracies where one party cannot easily take control (political economists call them “liberal democracies”) are least likely to have banking crises. This is because liberal democracies such as Canada and New Zealand are less likely to have one party in the majority, one party whose special interests form the regulation of the banking system.
Complexity also matters. Read more