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Some Lessons for Bank Regulation from Recent Crises

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Author Info
D.T. Llewellyn
Abstract

The causes of systemic bank distress are complex and multi-dimensional involving economic, financial, regulatory and structural weaknesses. This also means that regulatory approaches also need to be multi-dimensional. The paper suggests that an optimum "regulatory regime" needs to incorporate seven key components: regulation (the rules imposed by official agencies), official supervision, incentive structures within banks, market discipline, intervention arrangements in the event of distress, corporate governance arrangements with banks, and the accountability of regulatory agencies. All are necessary but none alone are sufficient for systemic stability. As there are trade-offs between the components, regulatory strategy needs to focus on the overall impact of the regime rather than only the regulation component.

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Paper provided by Netherlands Central Bank in its series DNB Staff Reports (discontinued) with number 51.

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Length: 66 pages
Date of creation: 2000
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Handle: RePEc:dnb:staffs:51

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    Other versions:
  3. Richard Brealey, 1999. "The Asian Crisis: Lessons For Crisis Management And Prevention," Journal of Applied Corporate Finance, Morgan Stanley, vol. 12(3), pages 111-124. [Downloadable!] (restricted)
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    Other versions:
  5. Michael Gavin & Ricardo Hausmann, 1996. "The Roots of Banking Crises: The Macroeconomic Context," RES Working Papers 4026, Inter-American Development Bank, Research Department. [Downloadable!]
  6. Ilan Goldfajn & Rodrigo O. Valdés, 1997. "Capital Flows and the Twin Crises : The Role of Liquidity," IMF Working Papers 97/87, International Monetary Fund.
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    Other versions:
  12. Bhattacharya, Sudipto & Boot, Arnoud W A & Thakor, Anjan V, 1998. "The Economics of Bank Regulation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(4), pages 745-70, November.
    Other versions:
  13. Stephen F. LeRoy, 1990. "Mutual deposit insurance," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue Jun 8. [Downloadable!]
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