What is it about?
The paper looks at how innovations such as ATMs and merchandise premiums for new deposits substitute for explicit interest and holding-company structures substitute for a system of branch banks and force regulators eventually either to impose restrictions on the substitutes or to relax the rules they serve to circumvent.
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Why is it important?
Sequences of Regulation, Avoidance and Reregulation are found in all regulated markets. The model predicts that almost all restrictions on financial competition lose force as time goes on.
Perspectives
Looking at current Regulations as temporary outcomes undermined by an evolutionary process of Reregulation. The model helps one to understand how the product lines and competitive strategies of banks have become more and more complicated and why some rules and control strategies are finally put aside completely.
Professor Edward James Kane
Boston College
Read the Original
This page is a summary of: Accelerating Inflation, Technological Innovation, and the Decreasing Effectiveness of Banking Regulation, The Journal of Finance, May 1981, Wiley,
DOI: 10.1111/j.1540-6261.1981.tb00449.x.
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