This new IMF working paper argues that "banks will want to influence the bank regulator to favor their interests, and they typically have the means to do so". The author, Daniel Hardy, shows that such "regulatory capture" in banking does not imply ineffectual regulation; a "captured" regulator may impose very tight, costly prudential requirements to reduce negative spillovers of risk-taking by weaker banks. Using a theorectical model, Hardy, concludes that causality may run from financial