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Regulatory Reform After the Crisis: Opportunities and Pitfalls

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  • Beck, Thorsten

Abstract

The recent crisis has led to a thriving academic and policy debate on the future regulation of financial institutions and markets. This paper argues that the objective of securing financial stability should be balanced with the goal of fostering financial deepening and efficiency, especially in emerging markets. This would require a market-harnessing rather than market-restricting approach to regulation; it would imply price-based capital and liquidity regulation, rather than restrictions and prohibitions; it would focus on forcing financial institutions to internalize the external costs of their risk-taking decisions rather than suppressing financial innovation. Beyond changes in the capital and liquidity requirements and corporate governance structures, the overhaul of failure resolution systems should top the reform agenda, to better address incentives problems and impose market discipline, even on large, too-important-to-close financial institutions. Reform areas should include both legal and regulatory frameworks and incentive structures for regulators and supervisors.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7733.

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Date of creation: Mar 2010
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Handle: RePEc:cpr:ceprdp:7733

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Keywords: Bank regulation; Financial crisis;

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References

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Cited by:
  1. Monika Marcinkowska, 2013. "Regulation and self-regulation in banking: in search of optimum," Bank i Kredyt, National Bank of Poland, Economic Institute, vol. 44(2), pages 119-158.

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