Regulating banks for the public? The dilemmas of prudential regulation

The regulation of banking activities present policymakers with a conundrum: while essential for a healthy and growing economy, they also present important risks of crises that affect all citizens. Prudential regulation is intended to contain the risks while enabling the socially beneficial functions of banks, but the shadow of financial interests influence hangs over the regulatory process. Assessing the reality and extent of this influence, this paper argues, requires first to acquire asound understanding of the social costs and benefits of banking, and the capacity of regulation to promote social welfare. This paper then offers the reader a review of the main issues covered in the literature and suggests some lessons for the study of financial interest groups.