This paper analyzes the problem of designing optimal financial regulation when regulatory arbitrage allows competition from other regulators, and whether regulatory harmonization as a means to curb regulatory arbitrage is desirable. We find (i) that regulatory arbitrage and competition matter in...

We study the relative strengths and weaknesses of principles based and rules based systems of regulation. In the principles based systems there is clarity about the regulatory objectives but the process of reverse-engineer these objectives into meaningful compliance at the firm level is...