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Regulation and self-regulation in banking: in search of optimum

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  • Monika Marcinkowska

    ()
    (University of Lodz)

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    Abstract

    The paper explores the nature of regulation in the banking sector and considers the following regulatory continuum: from free banking through self-regulation to supervisory regulation. Because the state’s responsibility for the functioning of the financial system requires the state to enact laws forming the system’s legal framework, laissez-faireism in banking is not possible. Nevertheless, the modern regulatory dialectics – liberalisation and deregulation alternating with re-regulation – brings up the issue of possible advantages and disadvantages (benefits and costs) of the two approaches for the economy. Overregulation is costly, but lenient regulations may undermine economic stability. This means that a subtle balance between under-regulation and overregulation in the banking sector should be sought. There is a need for well-balanced proportions of legal standards and voluntary, negotiated rules. As perfect regulations do not exist, an effective and generally accepted legal framework must be created for the banking system, strengthened by the imperatives of ethics.

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    File URL: http://www.bankikredyt.nbp.pl/content/2013/02/bik_02_2013_01_art.pdf
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    Bibliographic Info

    Article provided by National Bank of Poland, Economic Institute in its journal Bank i Kredyt.

    Volume (Year): 44 (2013)
    Issue (Month): 2 ()
    Pages: 119-158

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    Handle: RePEc:nbp:nbpbik:v:44:y:2013:i:2:p:119-158

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    Related research

    Keywords: banks; regulations; self-regulation; financial system safety;

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    References

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    1. James R. Barth & Gerard Caprio, Jr. & Ross Levine, 2002. "Bank Regulation and Supervision: What Works Best?," NBER Working Papers 9323, National Bureau of Economic Research, Inc.
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    18. Cukierman, Alex, 2011. "Reflections on the crisis and on its lessons for regulatory reform and for central bank policies," Journal of Financial Stability, Elsevier, vol. 7(1), pages 26-37, January.
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    21. Martin Cihák & Alexander F. Tieman, 2008. "Quality of Financial Sector Regulation and Supervision Around the World," IMF Working Papers 08/190, International Monetary Fund.
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