The Regulatory Response to the Financial Crisis
There are, at least, seven aspects relating to financial regulation where the recent, and still current, financial turmoil has thrown up issues for discussion. These include: 1. The scale and scope of deposit insurance; 2. Bank insolvency regimes, also known as ‘prompt corrective action’; 3. Money market operations by Central Banks; 4. Commercial bank liquidity risk management; 5. Procyclicality of capital adequacy requirements (and mark-to-market), Basel II; lack of counter-cyclical instruments; 6. Boundaries of regulation, conduits, SIVs and reputational risk; 7. Crisis management:- (a) domestic, within countries, e.g. UK Tripartite Committee; (b) cross-border; how to bear the burden of cross-border defaults? This paper describes how the current crisis has exposed regulatory failings, drawing largely on recent UK experience, and suggests what remedial action might be undertaken.
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- Demirguc-Kunt, Asli & Huizinga, Harry, 2004. "Market discipline and deposit insurance," Journal of Monetary Economics, Elsevier, vol. 51(2), pages 375-399, March.
- Christopher J. Pike & James B. Thomson, 1992. "FDICIA's prompt corrective action provisions," Economic Commentary, Federal Reserve Bank of Cleveland, issue Sep.
- Aggarwal, Raj & Jacques, Kevin T., 2001. "The impact of FDICIA and prompt corrective action on bank capital and risk: Estimates using a simultaneous equations model," Journal of Banking & Finance, Elsevier, vol. 25(6), pages 1139-1160, June.
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