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An Integrated Framework for Analyzing Multiple Financial Regulations

Author

Listed:
  • Charles A. E. Goodhart

    (Financial Markets Group, London School of Economics)

  • Anil K Kashyap

    (University of Chicago Booth School of Business, Federal Reserve Bank of Chicago, and National Bureau of Economic Research)

  • Dimitrios P. Tsomocos

    (Said Business School and St. Edmund Hall, University of Oxford)

  • Alexandros P. Vardoulakis

    (European Central Bank and Banque de France)

Abstract

In this companion paper to Goodhart et al. (2012), we explore the interactions of various types of financial regulation. We find that regulations that control fire-sale risk are critical for delivering financial stability and improving the welfare of savers and borrowers. We describe the combinations of capital regulations, margin requirements, liquidity regulation, and dynamic provisioning that are most effective in this respect. A policy featuring margin requirements together with countercyclical capital requirements delivers equal or better outcomes for the economy than does an unregulated financial system. But it is easy to produce combinations of regulation that look sensible but, when combined, have adverse effects on the economy.

Suggested Citation

  • Charles A. E. Goodhart & Anil K Kashyap & Dimitrios P. Tsomocos & Alexandros P. Vardoulakis, 2013. "An Integrated Framework for Analyzing Multiple Financial Regulations," International Journal of Central Banking, International Journal of Central Banking, vol. 9(1), pages 109-144, January.
  • Handle: RePEc:ijc:ijcjou:y:2013:q:0:a:5
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    References listed on IDEAS

    as
    1. Vasco Curdia & Michael Woodford, 2010. "Credit Spreads and Monetary Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(s1), pages 3-35, September.
    2. Markus K. Brunnermeier & Lasse Heje Pedersen, 2009. "Market Liquidity and Funding Liquidity," Review of Financial Studies, Society for Financial Studies, pages 2201-2238.
    3. repec:hrv:faseco:33077925 is not listed on IDEAS
    4. Andrei Shleifer & Robert Vishny, 2011. "Fire Sales in Finance and Macroeconomics," Journal of Economic Perspectives, American Economic Association, vol. 25(1), pages 29-48, Winter.
    5. Charles A.E. Goodhart & Anil K. Kashyap & Dimitrios P. Tsomocos & Alexandros P. Vardoulakis, 2012. "Financial Regulation in General Equilibrium," NBER Working Papers 17909, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Anil K. Kashyap & Dimitrios P. Tsomocos & Alexandros P. Vardoulakis, 2014. "How does macroprudential regulation change bank credit supply?," NBER Working Papers 20165, National Bureau of Economic Research, Inc.
    2. Adrian, Tobias & Liang, J. Nellie, 2014. "Monetary policy, financial conditions, and financial stability," Staff Reports 690, Federal Reserve Bank of New York, revised 01 Dec 2016.
    3. Xiong, Wanting & Wang, Yougui, 2017. "The impact of Basel III on money creation: A synthetic analysis," Economics Discussion Papers 2017-53, Kiel Institute for the World Economy (IfW).
    4. Agénor, Pierre-Richard & Pereira da Silva, Luiz, 2017. "Cyclically adjusted provisions and financial stability," Journal of Financial Stability, Elsevier, pages 143-162.
    5. Jaromir Benes & Douglas Laxton & Joannes Mongardini, 2016. "Mitigating the Deadly Embrace in Financial Cycles; Countercyclical Buffers and Loan-to-Value Limits," IMF Working Papers 16/87, International Monetary Fund.
    6. Luck, Stephan & Schempp, Paul, 2014. "Banks, shadow banking, and fragility," Working Paper Series 1726, European Central Bank.
    7. Ansgar Walther, 2014. "Jointly optimal regulation of bank capital and maturity structure," Economics Series Working Papers 725, University of Oxford, Department of Economics.
    8. Patrick Fève & Olivier Pierrard, 2017. "Financial Regulation and Shadow Banking: A Small-Scale DSGE Perspective," BCL working papers 111, Central Bank of Luxembourg.
    9. Oriol Carreras & E Philip Davis & Rebecca Piggott, 2016. "Macroprudential tools, transmission and modelling," National Institute of Economic and Social Research (NIESR) Discussion Papers 470, National Institute of Economic and Social Research.
    10. Caterina Mendicino & Kalin Nikolov & Javier Suarez & Dominik Supera, 2016. "Optimal Dynamic Capital Requirements," Working Papers wp2016_1614, CEMFI.
    11. Emilios Avgouleas, 2015. "Bank Leverage Ratios and Financial Stability: A Micro- and Macroprudential Perspective," Economics Working Paper Archive wp_849, Levy Economics Institute.
    12. Itai Agur & Maria Demertzis, 2015. "Will Macroprudential Policy Counteract Monetary Policy’s Effects on Financial Stability?," IMF Working Papers 15/283, International Monetary Fund.
    13. Michel Alexandre da Silva & Gilberto Tadeu Lima, 2015. "Combining Monetary Policy and Prudential Regulation: an agent-based modeling approach," Working Papers Series 394, Central Bank of Brazil, Research Department.
    14. Flore, Raphael, 2015. "Causes of Shadow Banking - Two Regimes of Credit Risk Transformation and its Regulation," Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113178, Verein für Socialpolitik / German Economic Association.
    15. Gabriele Galati & Richhild Moessner, 2014. "What do we know about the effects of macroprudential policy?," DNB Working Papers 440, Netherlands Central Bank, Research Department.
    16. repec:eee:finsta:v:29:y:2017:i:c:p:92-105 is not listed on IDEAS
    17. Ari, Anil & Darracq Pariès, Matthieu & Kok, Christoffer & Żochowski, Dawid, 2016. "When shadows grow longer: shadow banking with endogenous entry," Working Paper Series 1943, European Central Bank.
    18. Samitas, Aristeidis & Polyzos, Stathis, 2016. "Freeing Greece from capital controls: Were the restrictions enforced in time?," Research in International Business and Finance, Elsevier, vol. 37(C), pages 196-213.
    19. repec:clh:resear:v:8:y:2015:i:34 is not listed on IDEAS

    More about this item

    JEL classification:

    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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