In his presidential address, Zingales (2015) observes that large parts of society perceive finance as a rent-seeking activity and that complex financial regulation is prone to arbitrage and capture. In my dissertation, I investigate whether there is some truth in these allegations. In Chapter 1, I estimate the extent of regulatory arbitrage by banks in the securitization market. In Chapters 2 and 3, I show how incentive structures in credit rating agencies and banks can explain credit rating bias and excessive risk-taking, respectively. My findings have important implications for the design of financial regulation.