By Arnold Kling
Kevin Dowd and others have written a lengthy, important paper on the flaws in the Basel capital regulations. They write,
The Basel system provides a textbook example of the dangers of regulatory empire building and regulatory capture, and the underlying problem it addresses — how to strengthen the banking system — can only be solved by restoring appropriate incentives for those involved.
In my opinion, the capital regulations provide a textbook example of the dangers of regulatory hubris and the belief that you can make a financial system too regulated to fail.