Financial perspective: the unintended consequences of regulatory oversight and control — lessons from the banking and the asset/alternative funds industries

Professor Frederick Militello ()
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Professor Frederick Militello: New York University, Postal: Stern School of Business, New York, NY. USA

Journal of Financial Perspectives, 2014, vol. 2, issue 2, 131-139

Abstract: Regulators are largely problem solvers. They seek intended consequences. However, observation indicates that regulatory intentions and outcomes frequently do not coincide. If you will, there is a gap between the two; namely that of unintended consequences. Such consequences are the result of financial managers, and their organizations, facing increased regulatory induced business dilemmas. Such dilemmas must be managed, they cannot be solved. Moreover, they take the form of difficult choices — the essence of strategy — affecting the efficiency, innovativeness and competitiveness of financial organizations. As such, regulation has the unintended consequences of inspiring strategic thinking and organizational differentiation; reducing concentration and systemic risk. However, there is another unintended consequence afoot; namely, the regulatory induced impact on strategy and new business models is giving rise to increased interconnectivity of financial sectors and organizations. Intended consequences in one financial sector are spilling over into others, sometimes intentionally, sometimes not. Financial managers are busy assessing the results of regulation on comparative organizational capabilities, resulting in greater partnering across organizational and financial market segments. Clearly, when it comes to unintended consequences, and their systemic implications, there is a paradox. Regulators are becoming more proactive regarding these unintended consequences; increasing their regulatory reach. However, the paradox of unintended consequences is not a problem to be solved, it is a dilemma that must be managed with interactivity of the public and private sectors.

Keywords: Unintended Consequences; Regulation; Systemic Risk; regulation Problem Solving; Regulation Managing Dilemmas; Regulatory Induced Business Dilemmas; Shadow Markets; Asset Management (search for similar items in EconPapers)
JEL-codes: G23 G28 G38 (search for similar items in EconPapers)
Date: 2014
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