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Financial Engineering and Engineering of Financial Regulation

  • Coskun, Yener

As observed at least in last two decades, financial engineering has not only changed the way of doing business in finance world, but also has changed daily life of average citizens in the leading economies. Structured products named as weapons of mass destruction in some post-crisis comments. But it is fair to say that few people could understand the nature and risks of these instruments before the crisis. By using literature review and case study analysis, the author analyses how financial regulation and supervision have failed to understand/manage the financial engineering products during/before the global financial crisis. In this context, we discuss the measures to enhance good regulatory governance in engineered products. We conclude however engineered products have important benefits to the global economy, regulatory/supervisory structure should be improved for better firm/system wide risk management. Secondly, there are four components to improve prudential regulatory/supervisory framework of structured products. Those are, timely/effectively action to the balance sheet problems, to increase the effectiveness of the risk management, to improve independence and quality of prudential regulation/supervision and to increase accountability of supervisors.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 34838.

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Date of creation: 21 Oct 2011
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Handle: RePEc:pra:mprapa:34838
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  1. Masahiro Kawai & Richard Newfarmer & Sergio L. Schmukler, 2005. "Financial Crises: Nine Lessons from East Asia," Eastern Economic Journal, Eastern Economic Association, vol. 31(2), pages 185-207, Spring.
  2. Michael Taylor & Marc Quintyn, 2002. "Regulatory and Supervisory Independence and Financial Stability," IMF Working Papers 02/46, International Monetary Fund.
  3. Udaibir S. Das & Marc Quintyn, 2002. "Crisis Prevention and Crisis Management: The Role of Regulatory Governance," IMF Working Papers 02/163, International Monetary Fund.
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