Regulatory Capture: When private entities get so much power that they’re able to capture the very government meant to regulate them.
It’s a downside that comes with “too big to fail” firms, since the size of these megabanks alone can be used as leverage in crises to demand special treatment (bigger bailouts, more direct access to government officials, etc.).
The quote above comes from a recent report from a UK think tank, the Institute for Public Policy Research (h/t Demos). The report recommends, among other things, breaking up the banks to end “too big to fail,” so that these firms aren’t able to as easily capture regulators.
If you want to know more about the connections between Washington and Wall Street, the go-to source is OpenSecrets.org. You can see that the list of top finance contributors to politicians is full of megabanks.
Local lenders don’t have this kind of power. When people move their money to a local lender, they therefore help fight regulatory capture in Washington.