Regulation and Supervision: An Ethical Perspective
AbstractThis essay shows that government credit-allocation schemes generate incentive conflicts that undermine the quality of bank supervision and eventually produce banking crisis. For political reasons, most countries establish a regulatory culture that embraces three economically contradictory elements: politically directed subsidies to selected bank borrowers; subsidized provision of explicit or implicit repayment guarantees for the creditors of banks that participate in the credit-allocation scheme; and defective government monitoring and control of the subsidies to leveraged risk-taking that the other two elements produce. In 2007-2008, technological change and regulatory competition simultaneously encouraged incentive-conflicted supervisors to outsource much of their due discipline to credit-rating firms and encouraged banks to securitize their loans in ways that pushed credit risks on poorly underwritten loans into corners of the universe where supervisors and credit-ratings firms would not see them.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13895.
Date of creation: Mar 2008
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Publication status: published as Regulation and Supervision: An Ethical Perspective Edward J. Kane The Oxford Handbook of Banking Print Publication Date: Jan 2012 Subject: Economics and Finance, Financial Economics, Public Economics and Policy Online Publication Date: Sep 2012 DOI: 10.1093/oxfordhb/9780199640935.013.0012
Note: LE ME
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Find related papers by JEL classification:
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
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"Capital movements, asset values, and banking policy in globalized markets,"
606, Federal Reserve Bank of Chicago.
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