On The Costs And Benefits Of Financial Regulation

1. The significance of the articleWith development of finance industry, the diversified business, which comes from interpenetration of banking and securities and insurance, is unavoidable. Today, regulatory administration in finance industry has been undergoing a change in the idea of financial regulation because the financial institutes have prompted their abilities of prevention and control of risks they faced. So, it has been doubted that we need not take the cost occurred from regulation and restriction of competition into account in order to maintain the stability of finance.From perspective of economics, the economical resources would be dissipated in the process of finance regulation. For example, there are apparent opportunity costs when we used capital and labor to make and execute regulatory laws or enhance the abilities of regulators. On the other hand, by using modern information technology financial institutes can make the money and information move fast and respond to the market signal quickly. That means non-market oriented behavior will become more and more repulsive because of its compulsion and inefficiency. Therefore, financial regulation must obey the law of market although it comes from government. We should try our best to substitute market-oriented methods of regulation for administrative methods only. Then, it will be significant in theory and practice that we use cost-benefit analysis to make our financial regulation cost smallest and outcome biggest on the basis of following the law of market.2. Basic train of thought and structure of the dissertationBasic train of thought of the dissertation: at first, gain some beneficial conclusions after analyzing the cost-benefit problems offinancial regulation by using relative economy theories; then, analyze the performance and reason of financial regulation in China whose efficiency is not good because of high cost and low benefit; at last, bring forward some advices to deal with the problem of regulation about low efficiency in China based on the conclusions from former analysis.The dissertation adopts structure that separates it into two parts. In the top section, analyze the cost-benefit problems of financial regulation by using relative economy theories. And in the under section, analyze the performance and reason of financial regulation in China and bring forward some advices to deal with the problem of regulation about low efficiency in China based on the conclusions from theoretical analysis. The first part of the top section is the cost and benefit of financial regulation. In this part, firstly, define the concepts of cost and benefit of financial regulation. There are two depth of its meaning: in narrow sense regulatory cost include administration cost and compliance cost burden by government and financial institutes respectively, and in broad sense it also include indirect loss besides cost in narrow sense. After that three difficulties in defining these cost are discussed. Secondly, in order to define the benefit of financial regulation, analyze some failures (such as negative externalities, merit goods supply, and so on) in financial market that lead regulation interfering in. If regulation interference can rectify these failures, the results of regulation will be regarded as its benefits. Thirdly, the final aim of cost-benefit analysis of finance regulation is realization of financial deepening because enhance the efficiency of finance regulation can improve the allocation of resources in finance and whole society and realize optimization of allocation in the sense of Pareto criterion.The second part of the top section is the efficient mode of financial regulation based on cost-benefit analysis. In this part, firstly, cite two basic mechanisms in economics to analyze the deficiencies of single-eyedheteronomy regulation and use cost-benefit analysis to find a reasonable interval in which the optimization exists. Secondly, use theory of repeated game to analyze the merits and defec...