A Systemic Approach to Financial Regulation: a European Perspective
AbstractThe global financial crisis has pinpointed the relevance and the virulence of systemic risk in modern innovative finance. It is grounded in the propensity of credit markets to drift to extremes in close correlation with asset price spikes and slumps. In turn, such a propensity is nurtured by the heuristic behaviour of market participants under severe uncertainty. While plagued by disaster myopia, market participants spread systemic risk. Such adverse conditions have been magnified by financial innovations that have made finance predatory and capable of capturing regulators to annihilate prudential policies. Malfunctioning in finance is so deep and disorders are so widespread that sweeping reforms are the order of the day, if financial stability is viewed as a primary public concern. In this paper we argue that macro prudential policy should be the linchpin of relevant reforms. Being a top-down approach, it impinges both upon monetary policy and micro prudential policy.
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Bibliographic InfoArticle provided by CEPII research center in its journal International Economics/Economie Internationale.
Volume (Year): (2010)
Issue (Month): 123 ()
Financial crisis; macro-prudential policy; financial regulation;
Other versions of this item:
- Michel Aglietta & Laurence Scialom, 2009. "A systemic approach to financial regulation: a European perspective," EconomiX Working Papers 2009-29, University of Paris West - Nanterre la Défense, EconomiX.
- G01 - Financial Economics - - General - - - Financial Crises
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
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