The Myth of Single Regulatory Model: A Comparative Study on Institutional Regulation and Functional Regulation

• Main Authors: Wei-Chen Tu, 杜偉成
• Other Authors: Yung-Cheng Chuang
• Format: Others
• Language: zh-TW
• Published: 2005
• Online Access: http://ndltd.ncl.edu.tw/handle/33435863743546588908

碩士 === 中原大學 === 財經法律研究所 === 93 === The researching purpose of the thesis is finding out what “single financial regulatory model” means, and trying to examine the supervisory efficiency of unitary financial regulator. Generally speaking, the regime created to regulate banks recognizes the unique risks presented by a bank’s balance sheet and the special place of banks in economy. There are three unique economic functions of all depository institutions (commercial banks). First, commercial banks tend to have very little equity relative to other firms, and invest in illiquid loan assets while gathering funds from demand deposits for the most part. It means that even banks with healthy balance sheets and no loss in the underlying value of their assets (loan portfolios) can be forced into bankruptcy. Second, deposit institutions are the most important liquidity provider. Third, central bank must rely on commercial banks as the monetary policy conduit. In the securities exchanging process, the issuers always hold more material information about the expected profit of their enterprise than outside investors do. Then, related economics theses had demonstrated that legislator and regulator should take responsibility for enacting and executing specialized securities laws (including special mandatory disclosure and anti-fraud rules) to avoid “adverse selection” and “moral hazard” phenomena occurring in the securities markets. Conceptually, the securities law regime is based on what regulatees do rather than who they are. That is exactly the functional regulation concept. In contrast, the primary regulatory trigger under the banking laws lies in the definition of a bank which rests on combination of activities in which a bank is engaged. Banking laws are enacted under the institutional regulation concept. In this thesis, I assert that functional regulation is born out of securities laws while institutional regulation is associated with banking regulation. Therefore, Gramm-Leach-Bliley Act of 1999 adopts a hybrid of both functional and institutional regulation to assign the supervisory jurisdiction between the Fed and SEC rationally. Contrast with the U.S. financial regulatory structure, the Taiwanese legislator had followed the U.K.-style reforming step, established the “Financial Supervisory Commission” as integrated financial regulator. In my opinion, since the financial system is always “diversified”, regulatory regime should inevitably divide by functional or institutional lines. That is to say, banking law only applies on commercial banks for their special financial structure and unique economic function. By the same token, securities laws only apply to investment transactions for the reason that investors always rely ample and truthful information to make decision. While regulators and courts are taken to settle the disputes in both banking and securities markets, the first thing they have to do is defining what is a bank and what is a security. Therefore, the proposal of establishing a single financial regulator to execute a unified financial law is nothing but meaningless.