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The government regulatory agencies keep checking the big businesses in respective industries in the economy. They check for price regulation, environmental damage, health, education, safety measures, malpractices, and others.

In practice, it is not always true. The regulatory agencies formulated for specific purposes may not be able to perform their functions honestly. They are influenced or completely captured by the industries which were supposed to be regulated.

When formulating the regulatory guidelines, the agencies aim to select eligible people or experts from respective industries. These qualified people from the industries may set some guidelines derived from their previous sentiments, favoring the big businesses.

These industries dominate the process of regulatory agencies, and the check on business remains biased by the industries. Hence, the regulatory agencies lose their significance.

In 2008, the global economic recession resulted because of faulty functioning of the Securities and Exchange Commission on the performance of Lehman Brothers.

Lehman Brothers was adopting irresponsible lending techniques. The financial institution was exceeding the risk limits, and risk management was highly inefficient. There was also some manipulation in the institution鈥檚 balance sheet. Despite being aware of all the discrepancies, the SEC didn鈥檛 take any regulatory action against Lehman Brothers.

The government regulatory agency failed to keep a check on the financial institution. Hence, it resulted in a global economic recession.