Financial paradigms

Financial paradigms

What market and regulatory issues led to the subprime crisis? How should prudential regulation be fixed? The answers depend on the interpretative lenses or 'paradigms' through which one sees finance. The agency paradigm, which has dominated recent regulatory policy, seems to be influencing much of the emerging reform agenda. But collective welfare failures particularly externalities and collective cognition failures particularly mood swings were at least as important in driving the crisis. All three paradigms should therefore be integrated into a more balanced policy agenda. But doing so will be difficult because they often have inconsistent policy implications.

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Bibliographic Details
Main Authors: Torre, Augusto de la, Ize, Alain
Format: Brief biblioteca
Language:English
Published: World Bank, Washington, DC 2009-11
Subjects:ADVERSE SELECTION, AGENCY PROBLEM, AGENCY PROBLEMS, ARBITRAGE, ASSET PRICES, ASYMMETRIC INFORMATION, BALANCE SHEET, BANK POLICY, BANK RUNS, BANKING CRISIS, BANKING SYSTEM, BARGAINING, BORROWER, CAPITAL MARKET, CENTRAL BANK, COLLECTIVE ACTION, COMMERCIAL BANKING, COMMERCIAL BANKS, CONFLICTS OF INTEREST, CONSUMER PROTECTION, CONTRACTUAL RELATIONSHIPS, COORDINATION FAILURES, CREDIT DEFAULT, CREDIT DEFAULT SWAPS, DEBT, DEBT CONTRACTS, DEEDS, DEFAULT RISK, DEPOSIT, DEPOSIT INSURANCE, DEPOSIT RATES, DEPOSITOR, DEPOSITORS, ECONOMIC CONDITIONS, EMERGING-MARKET, ENTRY REQUIREMENTS, EXPOSURE, EXPOSURE TO RISK, EXTERNALITIES, FEDERAL RESERVE, FEDERAL RESERVE BANK, FEDERAL RESERVE BANK OF NEW YORK, FEDERAL RESERVE SYSTEM, FINANCIAL CRISES, FINANCIAL INNOVATION, FINANCIAL INSTITUTIONS, FINANCIAL INTERMEDIARIES, FINANCIAL INTERMEDIATION, FINANCIAL MARKET, FINANCIAL MARKETS, FINANCIAL REFORMS, FINANCIAL REGULATION, FINANCIAL SECTOR, FINANCIAL SERVICES, FINANCIAL STABILITY, FINANCIAL SYSTEM, FINANCIAL TRANSACTIONS, FINANCIAL VOLATILITY, GLOBAL BANKING, GOVERNANCE ISSUES, HOLDING, HOUSING, HOUSING PRICES, IMPERFECT INFORMATION, INFORMED INVESTORS, INSTRUMENT, INSURANCE, INVESTOR PROTECTION, INVESTORS DEPOSITS, IRRATIONAL EXUBERANCE, LENDER, LENDER OF LAST RESORT, LIQUIDITY, LOAN, MARK-TO-MARKET, MARKET DISCIPLINE, MARKET FAILURE, MARKET FAILURES, MARKET INEFFICIENCIES, MARKET LIQUIDITY, MARKET PARTICIPANTS, MARKET PLAYERS, MARKET PRACTICES, MATURITY, MATURITY MISMATCH, MATURITY MISMATCHES, MONETARY FUND, MORAL HAZARD, MORTGAGE, MORTGAGE CREDIT, OPPORTUNISTIC BEHAVIOR, POLICY RESPONSES, PORTFOLIOS, PRICE VOLATILITY, PRINCIPAL-AGENT PROBLEMS, PRIVATE SECTOR DEVELOPMENT, PRUDENTIAL REGULATION, PRUDENTIAL REGULATIONS, PUBLIC POLICY, REGULATOR, REGULATORS, REGULATORY FRAMEWORK, REGULATORY REGIME, RELATIONSHIP LENDING, RETURNS, RISK ASSESSMENTS, RISK AVERSION, RISK MANAGEMENT, RISK TAKING, SAFETY, SAFETY NET, SAVINGS, SECURITIES, SECURITIES MARKET, SECURITIES MARKET REGULATIONS, SECURITIZATION, SHAREHOLDERS, SHORT-TERM BORROWING, SOCIAL COSTS, STOCK PRICES, SUPERVISORY AGENCY, SUPPLIERS, SYSTEMIC RISK, SYSTEMIC RISKS, TAX, TRADITIONAL BANKING, TRANSPARENCY, WHOLESALE FUNDING, WHOLESALE INVESTORS, WORLD ECONOMY,
Online Access:http://documents.worldbank.org/curated/en/2009/11/11800010/financial-paradigms
http://hdl.handle.net/10986/10226
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Summary:What market and regulatory issues led to the subprime crisis? How should prudential regulation be fixed? The answers depend on the interpretative lenses or 'paradigms' through which one sees finance. The agency paradigm, which has dominated recent regulatory policy, seems to be influencing much of the emerging reform agenda. But collective welfare failures particularly externalities and collective cognition failures particularly mood swings were at least as important in driving the crisis. All three paradigms should therefore be integrated into a more balanced policy agenda. But doing so will be difficult because they often have inconsistent policy implications.

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