Complexity, Capacity, and Capture

doi:10.1017/CBO9781139565875.009

5 - Complexity, Capacity, and Capture

Published online by Cambridge University Press: 05 June 2014

Nolan McCarty

Edited by

Daniel Carpenter and

David A. Moss

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Nolan McCarty: Affiliation:
Woodrow Wilson School of Public and International Affairs
Daniel Carpenter: Affiliation:
Harvard University, Massachusetts
David A. Moss: Affiliation:
Harvard University, Massachusetts

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Summary

INTRODUCTION

In the debates on financial market reform that followed the Financial Crisis of 2007 and the Great Recession, reformers advocated three distinct approaches. Some argued that governments should act to fundamentally restructure the financial sector. Large banks should be broken up. Investment and commercial banks should be separated as they had been under the Glass-Steagall reforms of the 1930s (or at least the investment activity of commercial banks should be drastically restricted). Limits on the types of financial products that could be marketed and taxes on financial transactions were promoted. Opponents of government intervention positioned themselves at the opposite position. They argued that a government-led reconstruction of the financial marketplace would be counterproductive, if not futile. Such actions would impede financial innovation and restrict credit and liquidity. At most, according to this view, reform should get the taxpayer off the hook for the failure of financial firms. The middle ground in this debate was held by those who argued that the basic structure of the financial sector should remain intact but that the capacity and powers of regulatory agencies should be enhanced to better monitor the sector for systemic risks, financial fraud, and predatory lending practices. The middle ground, reflected in the Dodd-Frank financial reform bill, appears to have won out.

Type: Chapter
Information: Preventing Regulatory Capture
Special Interest Influence and How to Limit it
, pp. 99 - 123

DOI: https://doi.org/10.1017/CBO9781139565875.009 [Opens in a new window]

Publisher: Cambridge University Press

Print publication year: 2013

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