Cause v. consequence‐based regulation: Basel III v. the Eurocodes

Abstract

Purpose

The purpose of this paper is to compare two opposite approaches chosen to regulate an industry.

Design/methodology/approach

The approach is based on studying the two selected regulation systems, Basel III and the Eurocodes and identifies how the one system regulates financial institutions and the other one civil engineering design.

Findings

The paper shows that the financial regulation uses a cause‐based approach to regulation, in which the causes of a crisis are found and controlled. The Eurocodes in civil engineering make no specific attempt to understand the specific causes of a failure; however, they provide a framework, which transfers full responsibility onto the designer if the designer decides not to adhere to a set of codes of practice. It is the trade‐off between less regulation and increased responsibility.

Originality/value

The paper presents a new way of understanding the impact and use of regulation by comparing it to a system which has the same purpose but uses opposite means. It shows how financial regulation in reality has limitations which are its inherent weakness.

Citation

Vermorken, M.A. and Vermorken, A.T. (2011), "Cause v. consequence‐based regulation: Basel III v. the Eurocodes", Journal of Financial Regulation and Compliance, Vol. 19 No. 2, pp. 111-116. https://doi.org/10.1108/13581981111123834