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Recovery from the current banking crisis: Insights into costs and effectiveness of response regulations

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  • Lukasz Prorokowski
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    Abstract

    Purpose – Previous academic literature indicates that the case of the banking crises recovery, in view of implemented regulations and policies, differs across times and countries. This is explained by varied institutional environments in which banking sectors operate, and in which financial crises persist. Therefore, the aim of this study is to prioritize investigation of the regulatory framework in the crisis-response policies across European countries affected by the current financial turmoil. In order to elicit most accurate results and fill in the gap in existing literature on banking crises, the paper aims to focus on both qualitative and quantitative methodological frameworks in order to ensure that the concerns raised by practitioners are addressed and implications for the regulatory processes instrumented. Design/methodology/approach – The emphasis of the current study has been laid to flag the region- and country-specific vulnerabilities in regulatory framework employed for banking crisis recovery. Additional focus has been put on groups of systemic risk which evolved from the current financial crisis and ways these risks can be ameliorated. Furthermore, the current paper strives to explore the ideas of ways to ameliorate negative outcomes of the global crisis and mitigate common risks with reference to the flawed regulations. Especially, important issues have been raised by the interviewed experts who put forward their opinions on the ways of lifting the regulatory shortcomings and costs of remedies identified in the study and who provided solutions to ensuring the financial stability of European capital markets. Findings – The study highlighted areas of regulations that require immediate attention and which failed to prevent financial markets from the current banking crisis. These findings are then summarized with constructive proposals on how to amend banking sector and financial regulations. The study also provides a cross-European comparison of the financial crisis-recovery policies, evaluating solutions adopted in various selected European countries. Henceforth, the empirical model tested the possibility of a tradeoff existing between remedies which involve substantial public funds and exert burden on both fiscal balances and taxpayers, and the speed and effectiveness of the recovery processes. To this point, no tradeoff has been found. Moreover, contrasting the current banking crisis to the past financial market disturbances, highlighted the magnitude of the nascent economic downturn prevailing in Europe. Originality/value – Since the existing body of literature abounds in studies devoted to investigations of the causes for the current banking crisis, the research focus of this paper has been shifted away from the factors and flawed regulations that trigger banking crises. To this point, the paper has traits of pioneering work.

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    Bibliographic Info

    Article provided by Emerald Group Publishing in its journal Qualitative Research in Financial Markets.

    Volume (Year): 3 (2011)
    Issue (Month): 3 (October)
    Pages: 193-223

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    Handle: RePEc:eme:qrfmpp:v:3:y:2011:i:3:p:193-223

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    Related research

    Keywords: Banking; Financial crisis; Financial markets; International finance; Recovery policies;

    References

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    1. Fabian Valencia & Luc Laeven, 2008. "Systemic Banking Crises," IMF Working Papers 08/224, International Monetary Fund.
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    13. Persson, Torsten & Tabellini, Guido, 1998. "The size and scope of government: Comparative politics with rational politicians," Seminar Papers 658, Stockholm University, Institute for International Economic Studies.
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