Has the Regulatory Cycle Weakened? Evidence from a Century of Financial Legislation

Thilo Nils Hendrik Albers, Nützenadel, Alexander and Tobias Scheib

No 21419, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: The regulatory cycle view suggests that periods of deregulation encourage increased risk-taking, which in turn leads to financial crises and subsequent re-regulation. To test this proposition, we develop a novel 10-item index capturing prudential and structural banking regulation across 14 countries over the past century. We find that deregulation is indeed associated with heightened risk appetite and credit expansion. However, the regulatory response to financial crises has changed significantly over time. Consistent with the financial trilemma, the evidence suggests that the cycle has weakened, as open capital accounts are increasingly incompatible with effective regulation at the national level.

JEL-codes: F68 G18 G28 N10 N40 (search for similar items in EconPapers)
Date: 2026-04
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