Document Type
Article
Publication Date
8-2-2012
Publisher
Boston University School of Law
Language
en-US
Abstract
In the years before the Financial Crisis, banks got to pick their regulators, engaging in a form of regulatory arbitrage that we now know was a race to the bottom. We propose to turn the tables on the banks by allowing regulators, specifically, bank examiners, to choose the banks they regulate. We call this “reverse regulatory arbitrage,” and we think it can help improve regulatory outcomes. Building on our prior work that proposes to pay bank examiners for performance — by giving them financial incentives to avoid bank failures — we argue that bank supervisory assignments should be set through an auction among examiners. Examiner bidding would generate information about examiners’ skills, experience and preferences, as well as information about each bank. Provided examiners bear the upside and downside of their regulatory behavior, a bidding system for regulatory assignments could improve the fit between examiners and the banks they supervise, thereby enhancing regulatory efficiency.
Recommended Citation
Frederick Tung & M T. Henderson,
Reverse Regulatory Arbitrage: An Auction Approach to Regulatory Assignments
,
in
No. 12-49
Boston University School of Law, Law and Economics Research Paper Series
(2012).
Available at:
https://scholarship.law.bu.edu/faculty_scholarship/27
Comments
Published as: "Reverse Regulatory Arbitrage: An Auction Approach to Regulatory Assignments," 98 Iowa Law Review 1895 (2013).