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13 Cato J. 359 (1993-1994)
Banking is Different, Because it is Regulated

handle is hein.journals/catoj13 and id is 365 raw text is: BANKING Is DIFFERENT, BECAUSE IT IS REGULATED George Selgin As a critic of most forms of bank regulation, I am naturally inclined to sympathize with the basic thrust of Robert Clair, Gerald O'Driscoll, and Kevin Yeats's paper, which is that the empirical case for bank regulation is weak. Nevertheless, I cannot claim to be convinced by the evidence the authors offer in support of their case. On the contrary, I find myself unconvinced for two quite different reasons, each of which appears to contradict the other. The first reason is that the paper really does not prove what it purports to prove. The second is that the paper appears to prove too much. In addition to doubting the usefulness of the evidence offered by Clair, O'Driscoll, and Yeats, I also question whether the arguments they are trying to counter are really worthy of any empirical refutation at all. Banks Must Be Different in a Pareto-Relevant Sense In offering empirical evidence to show that banks are not different from other firms, Clair, O'Driscoll, and Yeats unwittingly suggest that, if banks were in fact different in the sense being investigated, then the banks would indeed be in need of regulation. In taking this approach, the authors may be said to grant too much to proponents of regulation, for they fail to note how the differences in question would not provide a valid basis for regulation even if the differences' empirical reality were beyond dispute. To see this, it is necessary first to consider for a moment the kinds of differences that can justify regulation, and the kinds that cannot. Obviously, banks are different from other firms in numerous respects that do not offer any special basis for regulating them. In Cato journal, Vol. 13, No. 3 (Winter 1994). Copyright @ Cato Institute. All rights reserved. The author is Assistant Professor of Economics at the University of Georgia. 359

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