Variation in the Intensity of Financial Regulation: Preliminary Evidence and Potential Implications

How intensively should financial markets be regulated? Given the talk of regulatory convergence in financial markets, one would think that this is a question on which there would be a robust academic literature with clear implications as to how a particular jurisdiction should go about determining its optimal level of financial regulation. As it turns out, no such literature or guidance exists. This Article begins with a discussion of the considerable difficulties of conducting a theoretically complete analysis of the costs and benefits of financial regulation, as well as the problems associated with making international comparisons between observed levels of the intensity of financial regulation. Notwithstanding these difficulties, I next present preliminary data about the direct regulatory costs of financial regulation in the United States and offer some tentative international comparisons. Even after adjusting for the size of U.S. financial markets, the direct costs of financial regulation in the United States are substantially higher than the costs observed in most other jurisdictions, in some cases as much as an order of magnitude higher. Moreover, common law jurisdictions seem to incur substantially higher direct regulatory costs than do civil law jurisdictions. I also present additional evidence about the level of enforcement activity in U.S. securities markets, reporting data on both public and private securities enforcement actions in recent years. Compared to at least the United Kingdom and Germany, the intensity of securities enforcement actions in the United States appears to be strikingly higher. Not only are there more financial regulators in the United States, but they also carry bigger sticks than their foreign counterparts. While the laws on the books may be converging, the level of enforcement efforts seems to vary widely across national boundaries and even within regions such as Europe. The Article concludes with some thoughts about additional lines of research in this area and the implications of this data for the ongoing debate over regulatory convergence