Knowledge Deficiencies in the Post-Crisis Regulatory Architecture

Confronted with the financial crisis of 2007ff., regulators and policymakers worldwide complained about insufficient data, information and expertise to assess systemic risk adequately. Yet, the debate lacks definitional clarity concerning the specific characteristics of these distinct phenomena. Based on semi-structured interviews, testimonies, reports and public statements, the paper examines the diverging nature and role of data-, information-, and knowledge-asymmetries in financial regulation. Each category is then applied to recent policy responses to the crisis, including the establishment of the FSOC and the OFR in the US, but also more widely-used instruments such as “living wills” and stress tests. As we will show, recent financial regulation is characterized by its narrow focus on data and information, and fails to address the even bigger problem: Knowledge asymmetries, or a growing epistemic gap between regulators and regulatees in the area of financial regulation, threatening the foundation of democratic capitalism as we know it.