The concepts of regulatory dialectic and regulatory arbitrage are frequently discussed in the context of regulating financial institutions.

1. Define each of regulatory dialectic and regulatory arbitrage. (2 marks)
2. Provide one example of how each of these concepts are related to changes in both of capital regulations and accounting regulation as they apply to financial institutions.

(4 marks)

3. How are these concepts relevant to credit risk management and pricing?

(5 marks)