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A Market-Based Approach to Regulatory Reform

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Regulatory requirements and prohibitions impose significant, although sometimes unintended, taxes on the business of banking. As with all business taxes, the true burden is shared jointly by investors in the form of reduced market valuations of their investment, by employees in the form of lower real wages, and by customers — in this case, in the form of higher interest paid on loans and lower interest received on savings.

Regulatory requirements and prohibitions impose significant, although sometimes unintended, taxes on the business of banking. As with all business taxes, the true burden is shared jointly by investors in the form of reduced market valuations of their investment, by employees in the form of lower real wages, and by customers — in this case, in the form of higher interest paid on loans and lower interest received on savings.


Suggested citation: Jordan, Jerry L., 1993. "A Market-Based Approach to Regulatory Reform," Federal Reserve Bank of Cleveland, Economic Commentary, 03.15.1993.

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