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Instabile Finanzmärkte

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  • Günter Franke
  • Jan P. Krahnen

Abstract

The paradigm of self‐stabilizing, equilibrating financial markets, respected for a long time, is seriously challenged by the recent financial crisis. Despite sophisticated bank risk management and comprehensive bank supervision interbank and corporate bond markets collapsed in 2007–2009. The state interventions required for saving banks are without precedent in modern economic history. In this essay we attempt to explain financial market instability. Key determinants of the crisis are, in our opinion, weaknesses of the information architecture which should provide credible information for investors. Three determinants of instability are identified: first, the utilization of debt instruments combined with high degrees of corporate leverage; second, the tradeability of securities combined with increased risk taking; and third, the increased degree of complexity of financial products and networks, combined with more homogeneous asset and risk structures of banks. These determinants strengthen financial system vulnerability and the role of the information architecture. We discuss several requirements for a meaningful regulatory reform, leaving out incentive issues (which are treated in Franke/Krahnen 2009), namely credible provision of information, macro‐prudential supervision, robust capital standards, as well as a limitation of risk clustering in derivative markets.

Suggested Citation

  • Günter Franke & Jan P. Krahnen, 2009. "Instabile Finanzmärkte," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 10(4), pages 335-366, November.
  • Handle: RePEc:bla:perwir:v:10:y:2009:i:4:p:335-366
    DOI: 10.1111/j.1468-2516.2009.00313.x
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    Cited by:

    1. Gunther Tichy, 2010. "War die Finanzkrise vorhersehbar?," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 11(4), pages 356-382, November.
    2. Jan Priewe, 2010. "What Went Wrong? Alternative interpretations of the global financial crisis," Competence Centre on Money, Trade, Finance and Development 1002, Hochschule fuer Technik und Wirtschaft, Berlin.
    3. Christoph Zeitler & Bernd Rudolph & Christian Kirchner & Christoph Kaserer & Markus Ferber, 2010. "Regulierung und Aufsicht der Banken: Brauchen wir Basel III?," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 63(03), pages 03-20, February.

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    More about this item

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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