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Regulating Wall Street: The Dodd–Frank Act and the New Architecture of Global Finance, a review

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  • Krainer, Robert E.
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    Abstract

    This article is a review of a 531 page book that in turn is a review and evaluation of the 2319 page Dodd–Frank Wall Street Reform and Consumer Protection Act passed by Congress on July 16, 2010. The overriding theme of the book is to pose two approaches to attaining financial stability in the future. One approach is to establish a council of wise men and women supported by an army of highly skilled professional financial economists to formulate and implement regulations designed to prevent future financial crises that wreak havoc on the real economy and require financial support from taxpayers. This is the approach of the Dodd–Frank Act. The second approach proposed by the authors of this book is to design a taxing system that taxes systemically important financial institutions on the basis of their contribution to systemic risk. Borrowing ideas from the literature on the taxation of negative externalities their view is that financial institutions that create crises should pay for the clean-up. They also argue that requiring the financial polluters to pay for the creation of systemic risk will reduce the supply of systemic risk. The reader is invited to decide which approach is best.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Financial Stability.

    Volume (Year): 8 (2012)
    Issue (Month): 2 ()
    Pages: 121-133

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    Handle: RePEc:eee:finsta:v:8:y:2012:i:2:p:121-133

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    Web page: http://www.elsevier.com/locate/jfstabil

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    Keywords: Dodd–Frank Act; Financial Stability;

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    1. Miles, David & Yang, Jing & Marcheggiano, Gilberto, 2011. "Optimal Bank Capital," Discussion Papers 31, Monetary Policy Committee Unit, Bank of England.
    2. Krainer, Robert, 2009. "Portfolio and financing adjustments for U.S. banks: Some empirical evidence," Journal of Financial Stability, Elsevier, vol. 5(1), pages 1-24, January.
    3. Nadauld, Taylor D. & Weisbach, Michael S., 2010. "Did Securitization Affect the Cost of Corporate Debt?," Working Paper Series 2010-16, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    4. Mai Dao & Prakash Loungani, 2010. "The Human Cost of Recessions," IMF Staff Position Notes 2010/17, International Monetary Fund.
    5. Cook, Douglas O & Easterwood, John C, 1994. " Poison Put Bonds: An Analysis of Their Economic Role," Journal of Finance, American Finance Association, vol. 49(5), pages 1905-20, December.
    6. Ashcraft, Adam B. & Santos, João A.C., 2009. "Has the CDS market lowered the cost of corporate debt?," Journal of Monetary Economics, Elsevier, vol. 56(4), pages 514-523, May.
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    Cited by:
    1. Pagès, Henri, 2013. "Bank monitoring incentives and optimal ABS," Journal of Financial Intermediation, Elsevier, vol. 22(1), pages 30-54.
    2. Chaigneau, Pierre, 2013. "Risk-shifting and the regulation of bank CEOs’ compensation," Journal of Financial Stability, Elsevier, vol. 9(4), pages 778-789.

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