FRANKFURT — A new research paper is pushing back against the growing movement to strip down banking regulations in the United States and Britain, warning that doing so could actually leave the financial system more exposed to risk.
The study is scheduled to be presented to leading central bank officials at the European Central Bank’s Sintra conference next week. Its central finding: complexity in financial regulation isn’t just bureaucratic red tape — it can serve as a meaningful barrier that makes it harder for banks to find workarounds.
Among the researchers is Stockholm School of Economics professor Mariassunta Giannetti. The team found that even when simplified rules appear equally strict on paper, banks are more likely to shift risks to other parts of the financial system to get around them.
“Our evidence suggests the U.S. rollback risks going too far,” the authors wrote, noting that Britain appears to be heading in a similar direction.
The research runs counter to current policy trends. In the United States, regulators have been loosening oversight and reducing capital requirements with the goal of encouraging lending and financial innovation. Britain, meanwhile, is revisiting post-financial crisis measures — including so-called ring-fencing rules — to give banks greater operational flexibility.
The study suggests these moves could have unintended consequences, since rules that are easier to follow are also easier to sidestep.
In the European Union, policymakers are attempting to streamline regulations without lowering overall capital requirements. The researchers say that approach is generally in line with their findings — provided that simplification doesn’t strip away what they describe as “load-bearing” elements that keep the rules effective in the first place.
Switzerland’s more aggressive regulatory stance following the 2023 collapse of Credit Suisse is also cited as consistent with the study’s conclusions, pairing strict requirements with enough specificity to close potential loopholes.
The authors do acknowledge a limitation: their findings are drawn from market data tied to publicly listed financial institutions, which means risks lurking in less-regulated corners of the market — such as private credit or private equity-backed lending — may not be fully captured.
