A regulatory regime for financial stability
As bank failures clearly involve avoidable costs, there is a welfare benefit to be derived from lowering their probability and reducing the cost of those that do occur. The paper suggests a paradigm for enhanced financial stability. A central theme is that, what are often viewed as alternatives, are in fact complements within an overall regulatory strategy. The discussion is set within the context of what is termed a regulatory regime which is wider than the rules and monitoring conducted by regulatory agencies. Just as the causes of banking crises are multi-dimensional, so the principles of an effective regulatory regime also need to incorporate a wider range of issues than externally imposed rules on bank behaviour. The key components of the regime are: (1) the rules established by regulatory agencies; (2) monitoring and supervision by official agencies; (3) the incentive structures faced by regulatory agencies, consumers and banks; (4) the role of market discipline and monitoring; (5) intervention arrangements in the event of bank failures; (6) the role of internal corporate governance arrangements within banks, and (7) the disciplining and accountability arrangements applied to regulatory agencies. The central theme is that the components of the regulatory regime need to be combined in an overall regulatory strategy, and that while all are necessary, none alone are sufficient. The objective is to optimise a regulatory strategy by combining the components of the regime, bearing in mind that negative trade-offs may be encountered. Thus, if regulation is badly constructed or taken too far, there may be negative impacts on other components to the extent that the overall effect is diluted. The paper also argues that the optimum mix of the components of the regime will vary between countries, over time for all countries, and between banks. The proposed New Basel Capital Accord is discussed in terms of the regulatory regime paradigm.
|Date of creation:||27 Jul 2001|
|Contact details of provider:|| Postal: P.O. Box 61, A-1011 Vienna, Austria|
Phone: +43/1/404 20 7205
Fax: +43/1/404 20 7299
Web page: https://www.oenb.at/
More information through EDIRC
|Order Information:|| Postal: Oesterreichische Nationalbank, Economic Studies Division, c/o Beate Hofbauer-Berlakovich, POB 61, A-1011 Vienna, Austria|
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.:
- Douglas D. Evanoff & Larry D. Wall, 2000.
"Subordinated debt and bank capital reform,"
Working Paper Series
WP-00-7, Federal Reserve Bank of Chicago.
- Douglas D. Evanoff & Larry D. Wall, 2000. "Subordinated debt and bank capital reform," FRB Atlanta Working Paper 2000-24, Federal Reserve Bank of Atlanta.
- Asli Demirgüç-Kunt & Enrica Detragiache, 1997. "The Determinants of Banking Crises; Evidence From Developing and Developed Countries," IMF Working Papers 97/106, International Monetary Fund.
- Jokivuolle, Esa & Kauko, Karlo, 2001. "The New Basel accord : Some potential implications of the new standards for credit risk," Research Discussion Papers 2/2001, Bank of Finland.
- Brealey, Richard, 1999. "The Asian Crisis: Lessons for Crisis Management and Prevention," International Finance, Wiley Blackwell, vol. 2(2), pages 249-272, July.
- Kane, Edward J., 2001. "Dynamic inconsistency of capital forbearance: Long-run vs. short-run effects of too-big-to-fail policymaking," Pacific-Basin Finance Journal, Elsevier, vol. 9(4), pages 281-299, August.
- Paul H. Kupiec & James M. O'Brien, 1997. "The pre-commitment approach: using incentives to set market risk capital requirements," Finance and Economics Discussion Series 1997-14, Board of Governors of the Federal Reserve System (U.S.).
- Arturo Estrella, 1998. "Formulas or supervision? Remarks on the future of regulatory capital," Economic Policy Review, Federal Reserve Bank of New York, issue Oct, pages 191-200.
- 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.
- Hoggarth, Glenn & Reis, Ricardo & Saporta, Victoria, 2002. "Costs of banking system instability: Some empirical evidence," Journal of Banking & Finance, Elsevier, vol. 26(5), pages 825-855, May.
- Glenn Hoggarth & Ricardo Reis & Victoria Saporta, 2001. "Costs of banking system instability: some empirical evidence," Bank of England working papers 144, Bank of England.
- Mathias Dewatripont & Jean Tirole, 1994. "The prudential regulation of banks," ULB Institutional Repository 2013/9539, ULB -- Universite Libre de Bruxelles.
- Robert R. Bliss & Mark J. Flannery, 2000. "Market discipline in the governance of U.S. Bank Holding Companies: monitoring vs. influencing," Working Paper Series WP-00-3, Federal Reserve Bank of Chicago.
- 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.
- 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.
- Timothy D. Lane, 1993. "Market Discipline," IMF Staff Papers, Palgrave Macmillan, vol. 40(1), pages 53-88, March. Full references (including those not matched with items on IDEAS)