Boston University School of Law


Reverse Regulatory Arbitrage:
An Auction Approach to Regulatory Assignments

M. Todd Henderson
University of Chicago - Law School

Frederick Tung
Boston University School of Law

University of Chicago Institute for Law and Economics Working Paper No. 610
(2D Series)
University of Chicago Public Law and Legal Theory Working Paper No. 397
Boston University School of Law Law & Economics Research Paper No. 12-49
(September 17, 2012)
Boston University School of Law Public Law & Legal Theory Paper No. 12-49


In the years before the Financial Crisis, banks got to pick their regulators, engaging in a form of regulatory arbitrage that we now know was a race to the bottom. We propose to turn the tables on the banks by allowing regulators, specifically, bank examiners, to choose the banks they regulate. We call this “reverse regulatory arbitrage,” and we think it can help improve regulatory outcomes. Building on our prior work that proposes to pay bank examiners for performance — by giving them financial incentives to avoid bank failures — we argue that bank supervisory assignments should be set through an auction among examiners. Examiner bidding would generate information about examiners’ skills, experience and preferences, as well as information about each bank. Provided examiners bear the upside and downside of their regulatory behavior, a bidding system for regulatory assignments could improve the fit between examiners and the banks they supervise, thereby enhancing regulatory efficiency.

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Contact Information

M. Todd henderson
University of Chicago - Law School
1111 E. 60th Street
Chicago, Illinois 60637

773-834-4168 (Phone)
773-702-0730 (Fax)


Contact Information

Frederick Tung
Professor of Law

Boston University School of Law
765 Commonwealth Avenue
Boston, MA 02215

Phone: (617) 358-6184