Affiliation:
1. Department of the Territorial Development Management and Urban Economics,
Faculty of Engineering Economics and Management, Riga Technical University,
Kalnciema 6, LV-1048 Riga, Latvia
Abstract
Purpose – In the field of the economics’ regulation researchers so far have built the conceptual framework
showing how the deadweight loss of market failures decrease and costs of the government intervention increase with
the increased level of the government intervention. In order to quantify relationships between the level of intervention,
intervention costs and the deadweight loss with econometric models it is important to understand how to quantify the
regulation costs as a part of intervention costs. The objective of the research presented in this paper is to find the appropriate methodology for the quantification of the regulation costs in the banking market.
Research methodology – literature review (regarding theories), mathematical methods for quantification and econometric
methods for validation purposes.
Findings – research shows that in the assessment of regulation costs three main stakeholders should be included – microprudential regulator, macroprudential regulator and financial regulation’s policy maker. Research presents their cost
assessment methodology. Its validation shows that in general methodology works as expected, i.e., higher government
intervention levels lead to higher regulation costs, however this general rule has exceptions, which in authors’ view
indicates that other factors have an impact on the cost levels.
Research limitations – research shows how to assess the costs of main stakeholders based on the publicly available
information. More precise view could be obtained if in the cooperation with authorities more details on certain cost
items are received.
Practical implications – research results will be used to assess all government intervention costs (other positions include
compliance costs and other indirect costs) and finalize the quantification of the framework. Quantified framework could
be used for more precise policy making regarding the regulation of the banking market.
Originality/Value – research shows how to quantify the regulation costs of the banking market as currently there are
only conceptual ideas.
Publisher
Vilnius Gediminas Technical University