While the debate on regulating large conglomerates of financial companies continues, some experts argue that private (or market-based) regulatory mechanisms may be more efficient in certain cases compared to government regulatory mechanism.
These experts argue that government regulators could be captured by special interests—of both the corporate and populist kind. And there is good reason to believe that instances of this kind have occurred in India, experts argue.
Therefore, experts feel that a bottom-up market-based regulatory system in such cases will be far superior to a government regulatorÂ’s top-down control of the financial system as the effects of regulatory capture and failure would naturally have much wider negative costs under the latter.
Where self-regulation is insufficient, market forces tend to evolve private regulatory solutions. For instance, external parties whose interests are aligned with the health of financial conglomerates may create binding regulations to monitor them, advocates of private regulatory mechanism argue.
In other words, the mere fact that written regulations may be required in a particular scenario does not automatically imply that government is the sole option to provide them, some experts opine.
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