IL financial institutions in the United States are regulated to greater or lesser extent and are encumbered with restrictions that range from regulation of entry to restrictions on the purchase of particular assets and of the rate of interest paid on particular liabilities (Gies, Mayer, and Ettin, 1963). The owners of financial institutions are, in part, compensated by special treatment under the tax laws (Keith, 1963), so that the net effect of governmental laws and decisions on the volume of assets invested in financial institutions as well as the relative effect on the various specialized institutions is difficult to calculate. The effect on resource allocation of these restrictions and tax shelters is unknown also. The major issue about regulation is whether regulation achieves a desirable social purpose when both the costs and benefits of the restrictions are considered. Broad issues of this kind cannot be resolved abstractly. They require analysis of the effect of each of the restrictions and of the combined effect, since some may partially or totally offset the effect of others and some may impose no constraint. Unfortunately, there is no verified theory which permits a searching examination of the effect of regulation, so we must use a less satisfactory meth-