Tracing Regulatory Capture in Microfinance : Irish Loan Fund Societies and the Loan Fund Board , 1860 - 1914

Weak regulation and regulatory inaction have been cited as significant factors in the recent financial crises in Britain, Ireland and the US. In Ireland, this had led to suggestions of regulatory capture. However, the existing empirical literature of regulatory capture has primarily focused on the regulators of utilities in the US; moreover, it has not analysed the effects and costs of the capture of financial regulators. This paper aims to address this lacuna by contributing an empirical study of a case of regulatory capture from late nineteenth century Ireland. This paper analyses the effects of an idiosyncratic shock to the Irish financial system in 1896 that only affected loan fund societies local financial quasi-mutuals that lent to non-members. It utilises a new dataset on loan fund societies to analyse the effect of regulatory capture on unitindependent financial institutions and finds that capture distorted depositor incentives, exploited borrowers and undermined their long-term survival prospects.