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An Integrated Framework for Analyzing Multiple Financial Regulations

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  • Charles A. E. Goodhart

    (Financial Markets Group, London School of Economics)

  • Anil K Kashyap

    (University of Chicago Booth School of Business, Federal Reserve Bank of Chicago, and National Bureau of Economic Research)

  • Dimitrios P. Tsomocos

    (Said Business School and St. Edmund Hall, University of Oxford)

  • Alexandros P. Vardoulakis

    (European Central Bank and Banque de France)

Abstract

In this companion paper to Goodhart et al. (2012), we explore the interactions of various types of financial regulation. We find that regulations that control fire-sale risk are critical for delivering financial stability and improving the welfare of savers and borrowers. We describe the combinations of capital regulations, margin requirements, liquidity regulation, and dynamic provisioning that are most effective in this respect. A policy featuring margin requirements together with countercyclical capital requirements delivers equal or better outcomes for the economy than does an unregulated financial system. But it is easy to produce combinations of regulation that look sensible but, when combined, have adverse effects on the economy.

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Bibliographic Info

Article provided by International Journal of Central Banking in its journal International Journal of Central Banking.

Volume (Year): 9 (2013)
Issue (Month): 1 (January)
Pages: 109-144

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Handle: RePEc:ijc:ijcjou:y:2013:q:0:a:5

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  1. Brunnermeier, Markus K & Pedersen, Lasse Heje, 2007. "Market Liquidity and Funding Liquidity," CEPR Discussion Papers 6179, C.E.P.R. Discussion Papers.
  2. Andrei Shleifer & Robert Vishny, 2011. "Fire Sales in Finance and Macroeconomics," Journal of Economic Perspectives, American Economic Association, vol. 25(1), pages 29-48, Winter.
  3. Vasco Cúrdia & Michael Woodford, 2009. "Credit spreads and monetary policy," Staff Reports 385, Federal Reserve Bank of New York.
  4. Goodhart, Ch. A. E. & Kashyap, A. K. & Tsomocos, D. P. & Vardoulakis, A. P., 2012. "Financial Regulation in General Equilibrium," Working papers 372, Banque de France.
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