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A Review of Financial Regulations to Avoid the Nationalisation of Losses in the Banking System

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  • Sorana Vătavu

    ()
    (West University of Timișoara, Romania)

  • Marilen Pirtea

    ()
    (West University of Timișoara, Romania)

  • Sorin Vătavu

    ()
    (University of Petroșani, Romania)

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    Abstract

    This article investigates the regulations which should be applied in the financial system in order to minimize the losses. The subject is based on the banking policy of “privatisation of profits and nationalisation of losses” and it is debated mainly from trade articles point of view. Even when taxpayers do not agree, governments choose either to bailout influential banks or to cover their losses with a deposit insurance. Banks would take advantage of any opportunity to increase earnings, even in the insolvency stage, and thus certain regulations and limitations must be provided to minimize the moral hazard occurred. The most important problem that deepens financial regressions relates to the losses spillover effect on the worldwide economy, and although a perfect global banking model cannot be implemented, the paper suggests regulations which improve the financial systems.

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    File URL: http://upet.ro/annals/economics/pdf/2011/Vatavu-Pirtea-Vatavu.pdf
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    Bibliographic Info

    Article provided by University of Petrosani, Romania in its journal Annals of the University of Petrosani - Economics.

    Volume (Year): 11 (2011)
    Issue (Month): 1 ()
    Pages: 277-288

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    Handle: RePEc:pet:annals:v:11:y:2011:i:1:p:277-288

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    Web page: http://www.upet.ro/

    Related research

    Keywords: profit privatization; losses nationalization; financial crisis; liberalization; recapitalization; financial regulations;

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    References

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    1. Corbett, Jenny & Mitchell, Janet, 2000. "Banking Crises and Bank Rescues: The Effect of Reputation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(3), pages 474-512, August.
    2. Sapienza, Paola, 2004. "The effects of government ownership on bank lending," Journal of Financial Economics, Elsevier, vol. 72(2), pages 357-384, May.
    3. Kevin C. Murdock & Thomas F. Hellmann & Joseph E. Stiglitz, 2000. "Liberalization, Moral Hazard in Banking, and Prudential Regulation: Are Capital Requirements Enough?," American Economic Review, American Economic Association, vol. 90(1), pages 147-165, March.
    4. George P. Kaufman, 2004. "FDIC losses in bank failures: has FDICIA made a difference?," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q III, pages 13-25.
    5. Smith, Clifford Jr. & Watts, Ross L., 1992. "The investment opportunity set and corporate financing, dividend, and compensation policies," Journal of Financial Economics, Elsevier, vol. 32(3), pages 263-292, December.
    6. Liang, Nellie, 1989. "Bank profits, risk, and local market concentration," Journal of Economics and Business, Elsevier, vol. 41(4), pages 297-305, November.
    7. John R. Walter, 2005. "Depression era bank failures : the great contagion of the great shakedown?," Economic Quarterly, Federal Reserve Bank of Richmond, issue Win, pages 39-54.
    8. Hubbard, R. Glenn & Palia, Darius, 1995. "Executive pay and performance Evidence from the U.S. banking industry," Journal of Financial Economics, Elsevier, vol. 39(1), pages 105-130, September.
    9. Mayes, David G., 2005. "Who pays for bank insolvency in transition and emerging economies?," Journal of Banking & Finance, Elsevier, vol. 29(1), pages 161-181, January.
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