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Measuring Regulatory Complexity

Jean-Edouard Colliard () and Co-Pierre Georg

No 14377, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Despite a heated debate on the perceived increasing complexity of financial regulation, there is no available measure of regulatory complexity other than the mere length of regulatory documents. To fill this gap, we propose to apply simple measures from the computer science literature by treating regulation like an algorithm: a fixed set of rules that determine how an input (e.g., a bank balance sheet) leads to an output (a regulatory decision). We apply our measures to the regulation of a bank in a theoretical model, to an algorithm computing capital requirements based on Basel I, and to actual regulatory texts. Our measures capture dimensions of complexity beyond the mere length of a regulation. In particular, shorter regulations are not necessarily less complex, as they can also use more "high-level" language and concepts. Finally, we propose an experimental protocol to validate measures of regulatory complexity.

Keywords: Basel Accords; Capital regulation; financial regulation; Regulatory Complexity (search for similar items in EconPapers)
JEL-codes: G18 (search for similar items in EconPapers)
Date: 2020-02
New Economics Papers: this item is included in nep-ban, nep-cba and nep-ore
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