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Difficult Issues in Financial Regulation for Financial Stability

In: The New Digital Era: Other Emerging Risks and Opportunities

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  • Peterson K. Ozili

Abstract

Purpose:This chapter explores some of the difficult issues in financial regulation for financial stability. Noting the lack of prior academic work in the topic, this chapter presents a discussion of some difficult issues in financial regulation for financial stability. Methodology:The chapter draws from real-world experiences in financial regulation and draws support from existing literature. Findings and conclusions: Some of the difficult issues include: the difficulty in breaking too-big-to-fail financial institutions into small insignificant parts; the difficulty in regulating executive compensation in the financial sector without limiting the ability of financial institutions to offer competitive pay for executive talent; difficulty in instilling strict financial regulation and supervision without limiting the ability of financial institutions to exploit emerging profitable opportunities; difficulty in ensuring that financial institutions increase lending in bad times and during recessions; the rarity of having both a female CEO and Chair in a major financial institution; difficulty in making Central Banks independent from the Federal Government; difficulty in making financial institutions relevant in the midst of hostile technological innovation and disruption. Practical implications: The implication of the findings is that financial regulation for financial stability is not an easy task. There will be issues that financial regulation can address, and there will be issues that financial regulation cannot address. Acknowledging that such difficulties exist on the path to financial stability is the first step to addressing these issues.

Suggested Citation

  • Peterson K. Ozili, 2022. "Difficult Issues in Financial Regulation for Financial Stability," Contemporary Studies in Economic and Financial Analysis, in: The New Digital Era: Other Emerging Risks and Opportunities, volume 109, pages 55-67, Emerald Group Publishing Limited.
    • Handle: RePEc:eme:csefzz:s1569-37592022000109b004
    DOI: 10.1108/S1569-37592022000109B004
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    Keywords

    Financial regulation; financial stability; bank supervision; crisis; central bank; banks; financial institutions; financial innovations; banking and finance; G21; G28;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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