How offshore financial competition disciplines exit resistance by incentive-conflicted bank regulators

This paper studies the impact of technological change and regulatory compet ition on governmental efforts to generate rents for banks in two stylized r egulatory environments. In the first environment, incentive-conflicted regu lators attempt to create rents by restricting the size and scope of individ ual banking organizations. In the second, rents come from efforts to supply deposit guarantees to troubled banks. In both cases, innovations in financ ial technology and in competing domestic and offshore regulatory arrangemen ts make the costs of delivering rents to banks more transparent to taxpayer s and encourage customers to push rent-dependent banking systems into crisi s. This analysis portrays the banking crises that have roiled world markets in recent years as information-producing events that identify and discredi t inefficient strategies of regulating banking markets.