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Regulation of the Banking Sector From the Economic Theory´s Point of View

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  • Martin Mandel
  • Vladimír Tomšík

Abstract

The authors of the paper discuss reasons as well as current stage of the regulation of the financial (mostly banking) sector. They are not in favor of strict rejection of the regulation, but they are not in favor of strong regulation of the financial sector either. The article is based on the economic theory that there are objective economic reasons as well as specific financial features which cannot recommend and provide clear, simple, and unilateral solution about what level of regulation is appropriate in the financial market. The authors offer some economic ideas that can be useful for preparing and evaluating new regulation of the banking sector. The paper also defines theoretical assumptions of an ideal financial system. Based on those assumptions, the authors formulate and describe problems of real working financial (banking) system, and these problems create necessary condition, but not sufficient condition for imposing regulation. Finally, the paper describes and discusses impacts of concrete new banking regulatory proposals (increasing capital requirements, creating conservation and countercyclical capital buffers, calculating leverage ratio and liquidity ratio, and imposing bank levy).

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Bibliographic Info

Article provided by University of Economics, Prague in its journal Politická ekonomie.

Volume (Year): 2011 (2011)
Issue (Month): 1 ()
Pages: 58-81

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Handle: RePEc:prg:jnlpol:v:2011:y:2011:i:1:id:772:p:58-81

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Related research

Keywords: central banking; capital requirements; Banking Regulation; Bank Levy;

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References

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  1. Bhattacharya, S. & Boot, A.W.A. & Thakor, A.V., 1995. "The Economics of Bank Regulation," Papers 9516, Centro de Estudios Monetarios Y Financieros-.
  2. James Tobin, 1978. "A Proposal for International Monetary Reform," Cowles Foundation Discussion Papers 506, Cowles Foundation for Research in Economics, Yale University.
  3. Hart, Oliver D. & Kreps, David M., 1986. "Price Destabilizing Speculation," Scholarly Articles 3448679, Harvard University Department of Economics.
  4. J. Bradford De Long & Andrei Shleifer & Lawrence H. Summers & Robert J. Waldmann, 1989. "Positive Feedback Investment Strategies and Destabilizing Rational Speculation," NBER Working Papers 2880, National Bureau of Economic Research, Inc.
  5. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March.
  6. Gordy, Michael B. & Howells, Bradley, 2006. "Procyclicality in Basel II: Can we treat the disease without killing the patient?," Journal of Financial Intermediation, Elsevier, vol. 15(3), pages 395-417, July.
  7. Jiøí Witzany, 2010. "On Deficiencies and Possible Improvements of the Basel II Unexpected Loss Single-Factor Model," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 60(3), pages 252-268, August.
  8. Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 301-25, June.
  9. Davis, E. Philip & De Bandt, Olivier, 1999. "A cross-country comparison of market structures in European banking," Working Paper Series 0007, European Central Bank.
  10. Johnson, Harry G, 1976. "Destabilizing Speculation: A General Equilibrium Approach," Journal of Political Economy, University of Chicago Press, vol. 84(1), pages 101-08, February.
  11. Anca Pruteanu-Podpiera & Laurent Weill & Franziska Schobert, 2007. "Market Power and Efficiency in the Czech Banking Sector," Working Papers 2007/6, Czech National Bank, Research Department.
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