Sometimes an avalanche of information can make correlations -and finding direction in correlations- very difficult. The Libor rate-rigging scheme has provided a focus that cuts through abundant irrelevant data. Regulatory capture is one item that has glowed brightly in the unfolding Libor drama.
For the uninitiated, regulatory capture is,
the process by which regulatory agencies eventually come to be dominated by the very industries they were charged with regulating. Regulatory capture happens when a regulatory agency, formed to act in the public's interest, eventually acts in ways that benefit the industry it is supposed to be regulating, rather than the public.The banks wield great influence over the entities that are supposed to oversee their adherence to the rules.
