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Some Lessons for Bank Regulation from Recent Crises

  • D.T. Llewellyn
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    The causes of systemic bank distress are complex and multi-dimensional involving economic, financial, regulatory and structural weaknesses. This also means that regulatory approaches also need to be multi-dimensional. The paper suggests that an optimum "regulatory regime" needs to incorporate seven key components: regulation (the rules imposed by official agencies), official supervision, incentive structures within banks, market discipline, intervention arrangements in the event of distress, corporate governance arrangements with banks, and the accountability of regulatory agencies. All are necessary but none alone are sufficient for systemic stability. As there are trade-offs between the components, regulatory strategy needs to focus on the overall impact of the regime rather than only the regulation component.

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    File URL: http://www.dnb.nl/binaries/sr051_tcm46-146829.pdf
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    Paper provided by Netherlands Central Bank in its series DNB Staff Reports (discontinued) with number 51.

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    Length: 66 pages
    Date of creation: 2000
    Date of revision:
    Handle: RePEc:dnb:staffs:51
    Contact details of provider: Postal: Postbus 98, 1000 AB Amsterdam
    Web page: http://www.dnb.nl/en/

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    16. Caprio Jr., Gerard, 1997. "Safe and sound banking in developing countries : we're not in Kansas anymore," Policy Research Working Paper Series 1739, The World Bank.
    17. Richard Brealey, 1999. "The Asian Crisis: Lessons For Crisis Management And Prevention," Journal of Applied Corporate Finance, Morgan Stanley, vol. 12(3), pages 111-124.
    18. Rebecca S. Demsetz & Marc R. Saidenberg & Philip E. Strahan, 1997. "Agency problems and risk taking at banks," Staff Reports 29, Federal Reserve Bank of New York.
    19. Glaessner, Thomas & Mas, Ignacio, 1995. "Incentives and the Resolution of Bank Distress," World Bank Research Observer, World Bank Group, vol. 10(1), pages 53-73, February.
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