Reading 16 - Economics and Regulation Flashcards
What are the 3 classifications of regulations
- Statutes - laws made by regulatory bodies
- Administrative regulations - rules issued by government agencies or other bodies authorized by the government
- Judicial law - findings of the court
What is FINRA ?
An SRO (self regulating organization) whose primary objective is to protect investors by maintaining fairness in US capital markets
What are the two main reasons regulations are needed?
- Informational frictions - when information is not equally available or distributed
- Externalities - deal with the consumption of public goods
What is the regulatory capture theory?
regardless of the original purpose behind its establishment, a regulatory body will, at some point, be influenced or even possibly controlled by the industry that is being regulated.
What is regulatory competition?
when regulators compete to provide the most business friendly environment
What is regulatory arbitrage?
when businesses shop for a country that allows specific behavior rather than changing the behavior
What are the 3 regulatory tools available to regulators?
- Price mechanisms - taxs on sins, subsidies on green energy
- Restricting / Requiring certain activites
- Provision of public goods or financing of private projects
Explain the purpose of regulating commerce?
its provides an essential framework to facilitate business decision making
Explain the purpose to regulating financial markets?
to prevent failures of the financial system
What are the 3 objectives of securities regulation ?
- Protecting investors
- Creating confidence in the markets
- Enhancing capital formation
What is Prudential Supervision?
refers to the monitoring and regulation of financial institutions to reduce system wide risks and to protect investors
What is the goal of anti-trust laws?
to promote domestic competition by monitoring and restricting activities that reduce or distort competition
What is regulatory burden (aka government burden) ?
refers to the cost of compliance for the regulated entity
What is net regulatory burden?
Regulatory burden - the private benefits of regulation
What is a Sunset Clause?
requires a cost-benefit analysis to be revisited before the regulation is renewed.
