What Is and What Is not Regulatory Arbitrage? A Review and Syntheses

Magnus Willesson

Chapter Chapter 5 in Financial Markets, SME Financing and Emerging Economies, 2017, pp 71-94 from Palgrave Macmillan

Abstract: Abstract Regulatory arbitrageArbitrage is an avoidance strategy of regulation that is exercised as a result of a regulatoryRegulatory arbitrage inconsistency. As a regulatory response strategy, it has been in the shadow of other possible determinants of regulatory development. This chapter reviews 91 research articles and addresses the analytical foundations of regulatory arbitrage in the literature in a search for operative definitions, theories and methodological concerns. Despite the observation that many studies treat regulatory arbitrageRegulatory arbitrage as a phenomenon that everyone implicitly knows, the review shows that an explicit understanding of regulatory arbitrage and its motives remains scattered. Theoretically speaking, the chapter concludes that the dominant approach is that when a regulatory arbitrage opportunity exists, it is utilised. However, several theories examining the opportunity costs related to the use of regulatory arbitrage are also identified. Both methodologically and empirically, the chapter concludes that regulatory arbitrage as a strategic choice is characterised as a non-action of an event, thus delimiting the opportunities to conduct empirical research. Transaction-based regulatory arbitrageArbitrage is more straightforward, and several studies therefore present measures of regulatory arbitrage. More precise and operative definitions and expanded eclectic theoretical understanding of drivers may spur stronger empirical research and regulatory development.

Keywords: Review; Literature survey; Regulatory arbitrage; Regulatory response; Banking regulation; Securitisation (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:pal:pmschp:978-3-319-54891-3_5

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DOI: 10.1007/978-3-319-54891-3_5

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