Variation in the Intensity of Financial Regulation: Preliminary Evidence and Potential Implications

Given all the talk of regulatory convergence in financial markets, one would think that good data would be available regarding the actual intensity of financial regulation in developed countries as well as a robust literature about how to determine the optimal level of regulatory intensity for financial markets and financial institutions. As it turns out, neither data nor theories are well developed on these topics. In this paper, I discuss first the considerable difficulties of conducting a theoretically complete analysis of costs and benefits in the area of financial regulation as well as the problems associated in making international comparisons between the observed levels of the intensity of financial regulation across national boundaries. Notwithstanding these difficulties, I proceed to present some data about direct regulatory costs of financial regulation in the United States and then engage in some preliminary international comparisons. Even after making adjustments for the size of U.S. financial markets, the costs of financial regulation in the United States are substantially higher than the costs observed in most other jurisdictions. Moreover, common law jurisdictions, in general, seem to incur substantially higher regulatory costs than do civil law jurisdictions. The paper also presents some additional evidence about the level of regulatory intensity in the area of securities regulation by reporting data on public and private securities enforcement actions in the United States in recent years, including data on both monetary and non-monetary sanctions. Compared to at least the United Kingdom and Germany, the intensity of securities enforcement actions in the United States appears to be strikingly higher. Not only are there more financial regulators in the United States, but they carry bigger sticks than their foreign counterparts. While law on the books may be converging, the level of enforcement efforts seems to vary widely across national boundaries and even within the regions, such as Europe. The paper concludes with some thoughts about additional lines of research in this area and then touches briefly upon the implications of my data for the debate over regulatory convergence and for future lines of research.