IDEAS home Printed from https://ideas.repec.org/a/ijc/ijcjou/y2015q3a3.html
   My bibliography  Save this article

The Road to Financial Stability: Capital Regulation, Liquidity Regulation, and Resolution

Author

Listed:
  • Stephen G. Cecchetti

    (Brandeis International Business School, NBER, and CEPR)

Abstract

Prior to the 2007–9 financial crisis, regulations addressing risk taking in the financial system were woefully inadequate. In this essay, I summarize the regulatory changes implemented over the past five years and come to three conclusions. First, as a result of the new Basel III standards, the global financial system is now substantially safer than it was, but probably not yet safe enough. Second, the costs of increasing capital requirements have been much smaller than we originally thought. And third, we are best advised to shy away from time-varying discretionary regulatory policies.

Suggested Citation

  • Stephen G. Cecchetti, 2015. "The Road to Financial Stability: Capital Regulation, Liquidity Regulation, and Resolution," International Journal of Central Banking, International Journal of Central Banking, vol. 11(3), pages 127-139, June.
    • Handle: RePEc:ijc:ijcjou:y:2015:q:3:a:3
    as

    Download full text from publisher

    File URL: http://www.ijcb.org/journal/ijcb15q3a3.pdf
    Download Restriction: no
    File URL: http://www.ijcb.org/journal/ijcb15q3a3.htm
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Anat Admati & Martin Hellwig, 2013. "The Bankers' New Clothes: What's Wrong with Banking and What to Do about It," Economics Books, Princeton University Press, edition 1, volume 1, number 9929.
    2. Stephen G. Cecchetti & Marion Kohler, 2014. "When Capital Adequacy and Interest Rate Policy Are Substitutes (And When They Are Not)," International Journal of Central Banking, International Journal of Central Banking, vol. 10(3), pages 205-231, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. How risky are the big U.S. banks?
      by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets on 2016-10-03 17:58:45

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Bakkar, Yassine & De Jonghe, Olivier & Tarazi, Amine, 2023. "Does banks’ systemic importance affect their capital structure and balance sheet adjustment processes?," Journal of Banking & Finance, Elsevier, vol. 151(C).
    2. Aikman, David & Haldane, Andrew & Hinterschweiger, Marc & Kapadia, Sujit, 2018. "Rethinking financial stability," Bank of England working papers 712, Bank of England.
    3. John Caparusso & Leonardo Ulf Lewrick & Nikola Tarashev, 2023. "Profitability, valuation and resilience of global banks - a tight link," BIS Working Papers 1144, Bank for International Settlements.
    4. Amin Jan & Maran Marimuthu, 2016. "Bankruptcy Profile of Foreign versus Domestic Islamic Banks of Malaysia: A Post Crisis Period Analysis," International Journal of Economics and Financial Issues, Econjournals, vol. 6(1), pages 332-346.
    5. Palek, Jakob & Schwanebeck, Benjamin, 2019. "Optimal monetary and macroprudential policy in a currency union," Journal of International Money and Finance, Elsevier, vol. 93(C), pages 167-186.
    6. Guillaume Arnould & Salim Dehmej, 2016. "Is the European banking system robust? An evaluation through the lens of the ECB?s Comprehensive Assessment," International Economics, CEPII research center, issue 147, pages 126-144.
    7. van Eeghen, Piet-Hein, 2021. "Funding money-creating banks: Cash funding, balance sheet funding and the moral hazard of currency elasticity," International Review of Financial Analysis, Elsevier, vol. 76(C).
    8. Hazar Altinbas & Goktug Cenk Akkaya, 2017. "Improving the performance of statistical learning methods with a combined meta-heuristic for consumer credit risk assessment," Risk Management, Palgrave Macmillan, vol. 19(4), pages 255-280, November.
    9. Yassine Bakkar & Olivier de Jonghe & Amine Tarazi, 2017. "Does banks' systemic importance affect their capital structure adjustment process?," Working Papers hal-01546995, HAL.
    10. Amin Jan & Maran Marimuthu & Muhammad Kashif Shad & Haseeb ur-Rehman & Muhammad Zahid & Ahmad Ali Jan, 2019. "Bankruptcy profile of the Islamic and conventional banks in Malaysia: a post-crisis period analysis," Economic Change and Restructuring, Springer, vol. 52(1), pages 67-87, February.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Cecchetti, Stephen G., 2016. "On the separation of monetary and prudential policy: How much of the precrisis consensus remains?," Journal of International Money and Finance, Elsevier, vol. 66(C), pages 157-169.
    2. Andy Mullineux, 2013. "Restoring The Bank Lending Channel Of Monetary Transmission," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, vol. 56(3-4), pages 225-239.
    3. Russell Cooper & Kalin Nikolov, 2018. "Government Debt And Banking Fragility: The Spreading Of Strategic Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 59(4), pages 1905-1925, November.
    4. Fidrmuc, Jarko & Lind, Ronja, 2020. "Macroeconomic impact of Basel III: Evidence from a meta-analysis," Journal of Banking & Finance, Elsevier, vol. 112(C).
    5. Ambrocio, Gene & Hasan, Iftekhar & Jokivuolle, Esa & Ristolainen, Kim, 2020. "Are bank capital requirements optimally set? Evidence from researchers’ views," Journal of Financial Stability, Elsevier, vol. 50(C).
    6. Christopher Gandrud & Mark Hallerberg, 2015. "Does Banking Union Worsen the EU's Democratic Deficit? The Need for Greater Supervisory Data Transparency," Journal of Common Market Studies, Wiley Blackwell, vol. 53(4), pages 769-785, July.
    7. Soyoung Kim & Aaron Mehrotra, "undated". "Effects of monetary and macroprudential policies – evidence from inflation targeting economies in the Asia-Pacific region and potential implications for China," GRU Working Paper Series GRU_2016_025, City University of Hong Kong, Department of Economics and Finance, Global Research Unit.
    8. Caner Bakir, 2017. "How can interactions among interdependent structures, institutions, and agents inform financial stability? What we have still to learn from global financial crisis," Policy Sciences, Springer;Society of Policy Sciences, vol. 50(2), pages 217-239, June.
    9. Goodhart, Charles, 2013. "Ratio controls need reconsideration," Journal of Financial Stability, Elsevier, vol. 9(3), pages 445-450.
    10. Jaworski, Piotr & Liberadzki, Kamil & Liberadzki, Marcin, 2017. "How does issuing contingent convertible bonds improve bank's solvency? A Value-at-Risk and Expected Shortfall approach," Economic Modelling, Elsevier, vol. 60(C), pages 162-168.
    11. Lazopoulos, Ioannis & Gabriel, Vasco, 2019. "Policy mandates and institutional architecture," Journal of Banking & Finance, Elsevier, vol. 100(C), pages 122-134.
    12. Lisa Kastner, 2017. "Tracing policy influence of diffuse interests: The post-crisis consumer finance protection politics in the US," SciencePo Working papers Main hal-02186320, HAL.
    13. Bremus, Franziska & Ludolph, Melina, 2021. "The nexus between loan portfolio size and volatility: Does bank capital regulation matter?," Journal of Banking & Finance, Elsevier, vol. 127(C).
    14. Abbassi, Puriya & Iyer, Rajkamal & Peydró, José-Luis & Tous, Francesc R., 2016. "Securities trading by banks and credit supply: Micro-evidence from the crisis," Journal of Financial Economics, Elsevier, vol. 121(3), pages 569-594.
    15. Mr. Itai Agur & Mr. Sunil Sharma, 2013. "Rules, Discretion, and Macro-Prudential Policy," IMF Working Papers 2013/065, International Monetary Fund.
    16. Mohammed Mizanur Rahman & Badar Nadeem Ashraf & Changjun Zheng & Munni Begum, 2017. "Impact of Cost Efficiency on Bank Capital and the Cost of Financial Intermediation: Evidence from BRICS Countries," IJFS, MDPI, vol. 5(4), pages 1-18, December.
    17. Malovaná, Simona & Hodula, Martin & Gric, Zuzana & Bajzík, Josef, 2023. "Macroprudential policy in central banks: Integrated or separate? Survey among academics and central bankers," Journal of Financial Stability, Elsevier, vol. 65(C).
    18. G. Padmanabhan, 2014. "Evolving regulations and emerging market challenges -- the Indian context," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 7(1), pages 195-204, March.
    19. Junye Li & Gabriele Zinna, 2018. "How Much of Bank Credit Risk Is Sovereign Risk? Evidence from Europe," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 50(6), pages 1225-1269, September.
    20. Palek, Jakob & Schwanebeck, Benjamin, 2019. "Optimal monetary and macroprudential policy in a currency union," Journal of International Money and Finance, Elsevier, vol. 93(C), pages 167-186.

    More about this item

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ijc:ijcjou:y:2015:q:3:a:3. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Bank for International Settlements (email available below). General contact details of provider: https://www.ijcb.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.