The economics and politics of regulatory change: An analysis of banking and other industries

An explanatory framework is presented to explain the regulation of business by the federal government. It is asserted that the most helpful way of explaining regulatory change is to include political entrepreneurship, imperfect information, and a variety of political institutions in an explanatory framework. The primary focus of the framework is how economic change and new information affect the politics of regulatory change. The framework is presented in contrast to various "theories" of regulation and deregulation. Particularly important, the framework attempts to explain deregulation and consumer regulation, areas generally unexplained by other theories.;The empirical analysis involves a broad overview of regulatory history in several industries, in addition to a detailed study of four banking industry cases. The evidence generally supports the framework. In particular, economic change, political entrepreneurship, and self-interested behavior play primary roles in generating regulatory change. Moreover, entrepreneurship at times results in policy favoring unorganized interests. Models focusing just on organized interest groups are too narrow, as are models ignoring political institutions.;Finally, a large theoretical and empirical gap in the literature on the politics of banking regulation is partially filled. The banking regulatory system is found to be consistent with the explanatory framework. The federal banking regulators have substantial leeway from congressional pressures, and typically favor the banking industry. The Federal Reserve Board faces strong pressure on monetary policy from other political institutions, but has much more discretion on banking regulatory policymaking.