IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

The Prudential Regulation of Financial Institutions: Why Regulatory Responses to the Crisis Might Not Prove Sufficient

  • William R. White
Registered author(s):

    It is now six years since a devastating financial and economic crisis rocked the global economy. Supported strongly by the G20 process, international regulators led by the Financial Stability Board have been working hard ever since to develop new regulatory standards designed to prevent a recurrence of these events. These international standards are intended to provide guidance for the drawing up of national legislation and regulation, and have already had a pervasive influence around the world. This paper surveys recent international developments concerning the prudential regulation of financial institutions: banks, the shadow banking system and insurance companies. It concludes that, while substantial progress has been made, the global economy nevertheless remains vulnerable to possible future financial instability. This possibility reflects three sets of concerns. First, measures taken to manage the crisis to date have actually made the prevention of future crises more difficult. Second, the continuing active debate over virtually every aspect of the new regulatory guidelines indicates that the analytical foundations of what is being proposed remain highly contestable. Third, implementation of the new proposals could suffer from different practices across regions. Looking forward, the financial sector will undoubtedly continue to innovate in response to competitive pressures and in an attempt to circumvent whatever regulations do come into effect. If we view the financial sector as a complex adaptive system, continuous innovation would only be expected. This perspective also provides a number of insights as to how regulators should respond in turn. Not least, it suggests that attempts to reduce complexity would not be misguided and that complex behavior need not necessarily be accompanied by still more complex regulation. Removing impediments to more effective self-discipline and market discipline in the financial sector would also seem recommended. Réglementation prudentielle des institutions financières : Pourquoi les réponses réglementaires à la crise pourraient ne pas suffire Cela fait maintenant six ans que l’économie mondiale a été mise à mal par une terrible crise économique et financière. Avec le soutien appuyé du G20, les instances de réglementation internationales, sous la houlette du Conseil de stabilité financière, s’efforcent depuis lors de mettre au point de nouvelles normes réglementaires destinées à empêcher que de tels événements se reproduisent. L’influence de ces normes internationales, conçues pour guider la conception de législations et de réglementations nationales, se fait déjà sentir partout dans le monde. La présente étude s’intéresse aux évolutions récemment intervenues dans la réglementation prudentielle des institutions financières : banques, système bancaire parallèle et compagnies d’assurances. Ses auteurs concluent que si des progrès considérables ont été accomplis, l’économie mondiale reste néanmoins vulnérable en cas d’éventuelle instabilité financière future. Cette éventualité repose sur trois sources de préoccupation : d’abord, les mesures prises à ce jour pour gérer la crise rendent plus difficile la prévention des crises futures. Ensuite, le débat très vif que continuent à susciter quasiment chacun des aspects des nouveaux principes réglementaires montre que les fondements analytiques sur lesquels reposent les propositions sont loin de faire l’unanimité. Enfin, la diversité des pratiques d’une région à l’autre pourrait nuire à la mise en oeuvre des nouvelles normes proposées. À n’en pas douter, le secteur financier continuera d’innover à l’avenir, en réponse aux pressions concurrentielles et pour tenter de se soustraire à toutes les réglementations entrant en vigueur, quelle qu’en soit la nature. Si l’on considère que le secteur financier est un système évolutif complexe, il s’ensuit qu’il ne peut qu’innover en permanence, et ce point de vue apporte un certain nombre d’éclairages sur la manière dont les instances de réglementation devraient réagir. Surtout, il montre qu’aller dans le sens d’une moins grande complexité serait sans doute judicieux, et qu’un système complexe ne doit pas forcément aller de pair avec une réglementation plus complexe encore. Il serait sans doute également recommandé de lever les obstacles à une plus grande efficacité de l’autoréglementation et de la discipline de marché dans le secteur financier.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://dx.doi.org/10.1787/5jz6zgzzw8s4-en
    Our checks indicate that this address may not be valid because: 403 Forbidden (http://dx.doi.org/10.1787/5jz6zgzzw8s4-en [303 See Other]--> http://www.oecd-ilibrary.org/economics/the-prudential-regulation-of-financial-institutions_5jz6zgzzw8s4-en). If this is indeed the case, please notify ()


    Download Restriction: no

    Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 1108.

    as
    in new window

    Length:
    Date of creation: 24 Mar 2014
    Date of revision:
    Handle: RePEc:oec:ecoaaa:1108-en
    Contact details of provider: Postal: 2 rue Andre Pascal, 75775 Paris Cedex 16
    Phone: 33-(0)-1-45 24 82 00
    Fax: 33-(0)-1-45 24 85 00
    Web page: http://www.oecd.org
    Email:


    More information through EDIRC

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. Adrian Blundell-Wignall & Paul Atkinson, 2010. "Thinking beyond Basel III: Necessary Solutions for Capital and Liquidity," OECD Journal: Financial Market Trends, OECD Publishing, vol. 2010(1), pages 9-33.
    2. Claudio Borio & Bent Vale & Goeth von Peter, 2010. "Resolving the financial crisis: are we heeding the lessons from the Nordics?," BIS Working Papers 311, Bank for International Settlements.
    3. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "This Time Is Different: Eight Centuries of Financial Folly," Economics Books, Princeton University Press, edition 1, volume 1, number 8973, April.
    4. Adrian Blundell-Wignall & Gert Wehinger & Patrick Slovik, 2009. "The elephant in the room: The need to deal with what banks do," OECD Journal: Financial Market Trends, OECD Publishing, vol. 2009(2), pages 1-27.
    5. Ramon Moreno, 2011. "Policymaking from a "macroprudential" perspective in emerging market economies," BIS Working Papers 336, Bank for International Settlements.
    6. Claudio E. V. Borio, 2003. "Towards a macroprudential framework for financial supervision and regulation?," BIS Working Papers 128, Bank for International Settlements.
    7. Morten L. Bech & Leonardo Gambacorta & Enisse Kharroubi, 2014. "Monetary Policy in a Downturn: Are Financial Crises Special?," International Finance, Wiley Blackwell, vol. 17(1), pages 99-119, 03.
    8. Patrick McGuire & Goetz von Peter, 2009. "The US dollar shortage in global banking," BIS Quarterly Review, Bank for International Settlements, March.
    9. Ingo Fender & Nikola Tarashev & Haibin Zhu, 2008. "Credit fundamentals, ratings and value-at-risk: CDOs versus corporate exposures," BIS Quarterly Review, Bank for International Settlements, March.
    10. Marcheggiano, Gilberto & Miles, David K & Yang, Jing, 2011. "Optimal Bank Capital," CEPR Discussion Papers 8333, C.E.P.R. Discussion Papers.
    11. Sebnem Kalemli-Ozcan & Bent Sorensen & Sevcan Yesiltas, 2011. "Leverage Across Firms, Banks and Countries," NBER Chapters, in: Global Financial Crisis National Bureau of Economic Research, Inc.
    12. Mathias Drehmann & Nikola Tarashev, 2011. "Systemic importance: some simple indicators," BIS Quarterly Review, Bank for International Settlements, March.
    13. Claudio Borio & Robert McCauley & Patrick McGuire, 2011. "Global credit and domestic credit booms," BIS Quarterly Review, Bank for International Settlements, September.
    14. Patrick McGuire & Goetz von Peter, 2009. "The US dollar shortage in global banking and the international policy response," BIS Working Papers 291, Bank for International Settlements.
    15. Claudio Borio & Mathias Drehmann, 2011. "Toward an Operational Framework for Financial Stability: “Fuzzy” Measurement and Its Consequences," Central Banking, Analysis, and Economic Policies Book Series, in: Rodrigo Alfaro (ed.), Financial Stability, Monetary Policy, and Central Banking, edition 1, volume 15, chapter 4, pages 063-123 Central Bank of Chile.
    16. Ingo Fender & Patrick McGuire, 2010. "Bank structure, funding risk and the transmission of shocks across countries: concepts and measurement," BIS Quarterly Review, Bank for International Settlements, September.
    17. Carmen M. Reinhart & M. Belen Sbrancia, 2011. "The Liquidation of Government Debt," NBER Working Papers 16893, National Bureau of Economic Research, Inc.
    18. Valentina Bruno & Hyun Song Shin, 2013. "Global Factors in Capital Flows and Credit Growth," Working Papers 1467, Princeton University, Department of Economics, Center for Economic Policy Studies..
    19. Claudio Borio, 2012. "The financial cycle and macroeconomics: What have we learnt?," BIS Working Papers 395, Bank for International Settlements.
    20. Manmohan Singh & James Aitken, 2010. "The (Sizable) Role of Rehypothecation in the Shadow Banking System," IMF Working Papers 10/172, International Monetary Fund.
    21. Adrian Blundell-Wignall & Paul Atkinson, 2012. "Deleveraging, Traditional versus Capital Markets Banking and the Urgent Need to Separate and Recapitalise G-SIFI Banks," OECD Journal: Financial Market Trends, OECD Publishing, vol. 2012(1), pages 7-44.
    22. Patrick Slovik, 2012. "Systemically Important Banks and Capital Regulation Challenges," OECD Economics Department Working Papers 916, OECD Publishing.
    23. David Laidler, 2009. "Financial Stability, Monetarism and the Wicksell Connection," Review of Economic Analysis, Rimini Centre for Economic Analysis, vol. 1(1), pages 60-79, September.
    24. Elod Takats, 2010. "Was it credit supply? Cross-border bank lending to emerging market economies during the financial crisis," BIS Quarterly Review, Bank for International Settlements, June.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:oec:ecoaaa:1108-en. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.