A regulatory capture in the financial system occurs when
A)government regulators own stocks of financial institutions.
B)the government and financial institutions become hostile to each other.
C)government regulators and financial institutions take actions to benefit each other.
D)the government makes loans directly to borrowers without going through the financial system.
E)the general public bails out a financial institution.

Question

Quizplus · Accepted Answer

Regulatory capture in the financial system occurs when government regulators and financial institutions take actions to benefit each other, rather than acting in the best interest of the general public. This can happen when regulators become too cozy with the industry they are meant to regulate, leading to a lack of oversight and lenient regulations that benefit financial institutions. For example, a regulator might weaken regulations in exchange for a job at a financial institution or other benefits from the industry. This can lead to risky practices and an increased likelihood of financial crises.

A Regulatory Capture in the Financial System Occurs When