What are the significant obstacles of banking regulation?
(1) regulatory arbitrage
the purposeful movement of financial activity from more regulated to less regulated venues. (Shifting banking activities to shadow banks system)
Some people think that only the big shadow banks should be regulated, but from the author's perspective, it can be a profound mistake because it opens the doors to MORE regulatory arbitrage. (213)
page 214 highlighted
The argument that regulators should establish a robust set of simple rules governing key features of the financial system reminds me of Hayek's idea in The Road to Serfdom. (capital ratio, reserve ratio, capital buffer, leverage ratio)
But the question is how to administer the regulation. (page 215)
regulatory shopping (page 216)
Different areas have regulations of different levels, banks search for the most lenient, incentivizing regulators to loosen their regulation to attract more banks.
I agree with author on page 217 argument. (see highlighted)
The existing system offers firms plenty of regulatory nooks and crannies where they can dodge effective oversight. (218)
Who will regulate the regulators?\(bureaucratic theory)
The author said that we should encourage more clever people to be regulators and enhance their welfare. (I have question on that)
Maybe SEC can recruit veteran trades and bankers who may be nearing retirement. (moral hazard since they are connected with former banks) [Regulatory capture]
page 222
page 223 break the big firms up
page 224 for too big to fail discussion
page 227 for argument of TBTF players and author's opinion on them
break up all the big banks?
page 231
My concern is that: if all financial intermediaries all stuck with their own core businesses, will it slow down the capital raising?
Will there be black market of interconnected financial services?
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