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Financial Regulatory Reform: Challenges Ahead

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  • Randall S. Kroszner
  • Philip E. Strahan

Abstract

Today's financial system is dominated by markets with institutions connected by short-term financing, securitization, derivatives, and other means. Yet regulations have focused on depositories, leaving regulators unprepared for the 2008 crisis. We suggest two key principles for regulatory reform. First, some changes in the financial system came as institutions lowered the burden of regulations through "regulatory arbitrage." Reform needs to avoid driving businesses "into the shadows," where risks may accumulate and sow seeds of future crises. Second, reform ought to improve transparency to reduce uncertainty and inter-linkages between players. We evaluate some of Dodd-Frank Act in light of these principles.

Suggested Citation

  • Randall S. Kroszner & Philip E. Strahan, 2011. "Financial Regulatory Reform: Challenges Ahead," American Economic Review, American Economic Association, vol. 101(3), pages 242-246, May.
  • Handle: RePEc:aea:aecrev:v:101:y:2011:i:3:p:242-46
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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.3.242
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    References listed on IDEAS

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    1. Acharya, Viral V. & Schnabl, Philipp & Suarez, Gustavo, 2013. "Securitization without risk transfer," Journal of Financial Economics, Elsevier, vol. 107(3), pages 515-536.
    2. Randall S. Kroszner, 2007. "Analyzing and assessing banking crises," Proceedings, Federal Reserve Bank of San Francisco.
    3. Kroszner, Randall S, 1999. "Can the Financial Markets Privately Regulate Risk? The Development of Derivatives Clearinghouses and Recent Over-the-Counter Innovations," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(3), pages 596-618, August.
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    Cited by:

    1. Götz, Martin & Krahnen, Jan Pieter & Tröger, Tobias, 2017. "Five years after the Liikanen Report: What have we learned?," SAFE White Paper Series 50, Goethe University Frankfurt, Research Center SAFE - Sustainable Architecture for Finance in Europe.
    2. Alqatawni, Tahsen, 2013. "The Impact of the Dodd-Frank Act on Small Banks," MPRA Paper 51109, University Library of Munich, Germany.
    3. Gary Gorton & Tyler Muir, 2016. "Mobile collateral versus immobile collateral," BIS Working Papers 561, Bank for International Settlements.
    4. Bessler, Wolfgang & Kurmann, Philipp & Nohel, Tom, 2015. "Time-varying systematic and idiosyncratic risk exposures of US bank holding companies," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 35(C), pages 45-68.
    5. repec:eee:jbfina:v:86:y:2018:i:c:p:204-223 is not listed on IDEAS
    6. Milcheva, Stanimira, 2013. "Cross-country effects of regulatory capital arbitrage," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 5329-5345.
    7. Klein, Peter G. & Wuebker, Robert & Zoeller, Kathrin, 2016. "Relationship banking and conflicts of interest: Evidence from German initial public offerings," Journal of Corporate Finance, Elsevier, vol. 39(C), pages 210-221.

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