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Role of financial regulation and innovation in the financial crisis

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  • Kim, Teakdong
  • Koo, Bonwoo
  • Park, Minsoo

Abstract

Using the financial and macroeconomic dataset of 132 countries, this study empirically analyzes the effects of financial regulations and innovations on the global financial crisis. It shows that regulatory measures such as restrictions on bank activities and entry requirements have decreased the likelihood of a banking crisis, while capital regulation and government ownership of banks have increased the likelihood of a currency crisis. Financial innovation has contributed to the banking crisis but contained the currency crisis. This study also shows that judicious implementation of regulatory measures is critical to financial stability because some regulations, if implemented simultaneously, can further aggravate or alleviate a crisis.

Suggested Citation

  • Kim, Teakdong & Koo, Bonwoo & Park, Minsoo, 2013. "Role of financial regulation and innovation in the financial crisis," Journal of Financial Stability, Elsevier, vol. 9(4), pages 662-672.
  • Handle: RePEc:eee:finsta:v:9:y:2013:i:4:p:662-672
    DOI: 10.1016/j.jfs.2012.07.002
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    References listed on IDEAS

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    Cited by:

    1. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Is the 2007 U.S. Sub-Prime Financial Crisis So Different? An International Historical Comparison," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 56(3), pages 291-299, September.
    2. Reddy, Kotapati Srinivasa & Nangia, Vinay Kumar & Agrawal, Rajat, 2014. "The 2007-2008 global financial crisis, and cross-border mergers and acquisitions: A 26-nation exploratory study," MPRA Paper 60148, University Library of Munich, Germany.
    3. Ivan Diaz-Rainey & John Ashton & Maz Yap & Murat Genc & Rosalind Whiting, 2015. "The determinants of regulatory responses to risks from financial innovation: Survey evidence from G20," Working Papers 15001, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
    4. repec:wsi:serxxx:v:62:y:2017:i:04:n:s0217590817400288 is not listed on IDEAS
    5. Lawless, Martina & O’Connell, Brian & O’Toole, Conor, 2015. "SME recovery following a financial crisis: Does debt overhang matter?," Journal of Financial Stability, Elsevier, vol. 19(C), pages 45-59.
    6. Gaganis, Chrysovalantis & Liu, Liuling & Pasiouras, Fotios, 2015. "Regulations, profitability, and risk-adjusted returns of European insurers: An empirical investigation," Journal of Financial Stability, Elsevier, vol. 18(C), pages 55-77.

    More about this item

    Keywords

    Financial regulation; Innovation; Government supervision;

    JEL classification:

    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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