Contemporary Finance

16Overview of Financial Regulation

16.1 Structure of Financial Regulation

Though often represented as a product of design, regulation is governed largely by institutional rather than by functional considerations. Like all institutions, regulation is emergent, the outcome of a long historical evolution involving governments, private financial institutions, and myriad competing interests. Much of this history is shaped by responses to financial and other crises.

16.1.1 Financial Regulatory Authorities

There is a bewildering array of regulations and regulatory authorities, within and across regions. Banks, in particular, are regulated at different levels of government and by different regulatory agencies. Jurisdictions can be nations, or subnational or supranational. Financial regulatory bodies are responsible, within a jurisdiction, for:

• intermediary types, such as banks, insurance companies, securities dealers, investment advisers;
• markets or platforms, such as securities exchanges;
• activities and contract types, such as dispensing investment advice or derivatives.

The United States, where restrictions on the locations as well as on the activities of banks have been the historical norm, has unusually many relatively small, locally focused banks compared to most countries, in addition to larger regional and internationally active banks. A large US bank, broker-dealer, or insurance company bank is typically organized as a holding company, with many subsidiaries of different ...