Containing Systemic Risk : Paradigm-Based Perspectives on Regulatory Reform

Financial crises can happen for a variety of reasons: (a) nobody really understands what is going on (the collective cognition paradigm); (b) some understand better than others and take advantage of their knowledge (the asymmetric information paradigm); (c) everybody understands, but crises are a natural part of the financial landscape (the costly enforcement paradigm); or (d) everybody understands, yet no one acts because private and social interests do not coincide (the collective action paradigm). The four paradigms have different and often conflicting prudential policy implications. This paper proposes and discusses three sets of reforms that would give due weight to the insights from the collective action and collective cognition paradigms by redrawing the regulatory perimeter to internalize systemic risk without promoting dynamic regulatory arbitrage; introducing a truly systemic liquidity regulation that moves away from a purely idiosyncratic focus on maturity mismatches; and building up the supervisory function while avoiding the pitfalls of expanded official oversight.

Saved in:
Bibliographic Details
Main Authors: de la Torre, Augusto, Ize, Alain
Format: Policy Research Working Paper biblioteca
Language:English
Published: 2011-01-01
Subjects:ACCOUNTING, ADVERSE SELECTION, AGENCY PROBLEMS, ARBITRAGE, ASSET MANAGERS, ASSET PRICES, ASSET PRICING, ASYMMETRIC INFORMATION, BAILOUTS, BALANCE SHEET, BALANCE SHEETS, BANK CAPITAL, BANK OF ENGLAND, BANK RUNS, BANKING CRISES, BANKING CRISIS, BANKING SYSTEM, BARGAINING, BORROWER, BORROWING, BUSINESS CYCLE, BUSINESS OPPORTUNITIES, CAPITAL CONSTRAINTS, CAPITAL FLOWS, CAPITAL MARKET, CAPITAL MARKETS, CAPITAL REGULATION, CAPITAL REQUIREMENTS, CENTRAL BANK, CLOSED ECONOMY, COLLATERAL, COLLECTIVE ACTION, COMMERCIAL BANKING, COMMERCIAL BANKS, CONFLICT OF INTEREST, CONTAINING SYSTEMIC RISK, CONTRACT ENFORCEMENT, CONTRACT RIGHTS, COORDINATION FAILURE, COORDINATION FAILURES, CREDIT EXPANSIONS, CREDIT RISK, CREDIT RISK EXPOSURES, DEBT, DEBT CONTRACTS, DEBT ISSUES, DEEDS, DEFAULT RISK, DEPOSIT, DEPOSIT INSURANCE, DEPOSITORS, DEPOSITS, DEREGULATION, DISPLACEMENT, DOUBLE TAXATION, DOWNSIDE RISKS, DRIVERS, ECONOMIC GROWTH, EMERGING MARKETS, EMPLOYMENT, ENTRY REQUIREMENTS, EUROPEAN CENTRAL BANK, EXPOSURE, EXPOSURE TO RISKS, EXTERNALITIES, FAILURE RESOLUTION, FEDERAL RESERVE, FEDERAL RESERVE BANK, FEDERAL RESERVE BANK OF NEW YORK, FINANCIAL CONTRACTS, FINANCIAL CRISES, FINANCIAL CRISIS, FINANCIAL DEVELOPMENT, FINANCIAL FRAGILITY, FINANCIAL INNOVATION, FINANCIAL INNOVATIONS, FINANCIAL INSTITUTIONS, FINANCIAL INTERMEDIARIES, FINANCIAL INTERMEDIARY, FINANCIAL INTERMEDIATION, FINANCIAL MARKETS, FINANCIAL POLICIES, FINANCIAL PRODUCTS, FINANCIAL REFORM, FINANCIAL REGULATION, FINANCIAL SERVICES, FINANCIAL STABILITY, FINANCIAL STRUCTURE, FINANCIAL STUDIES, FINANCIAL SYSTEM, FINANCIAL SYSTEMS, FINANCIAL TRANSACTIONS, FISCAL POLICY, FRAUD, GLOBAL BANKING, HOLDING, HOLDINGS, HOUSING, ILLIQUID ASSETS, IMPERFECT INFORMATION, INCOMPLETE MARKETS, INFORMATION ASYMMETRIES, INFORMATION ASYMMETRY, INFORMED INVESTORS, INSURANCE PREMIUM, INTEREST RATES, INTERNATIONAL BANK, INTERNATIONAL ECONOMICS, INTERNATIONAL FINANCE, INTERNATIONAL FINANCIAL CRISIS, INVESTING, INVESTMENT BANKS, INVESTMENT DECISIONS, INVESTMENT OPPORTUNITIES, INVESTOR PROTECTION, IRRATIONAL EXUBERANCE, LENDER, LENDER OF LAST RESORT, LENDER-OF-LAST-RESORT, LENDERS, LEVEL PLAYING FIELD, LIABILITY, LIQUID INVESTMENTS, LIQUID MARKETS, LIQUIDITY, LIQUIDITY RISK, LOAN, MACROECONOMIC CONDITIONS, MARKET ACCESS, MARKET DISCIPLINE, MARKET EQUILIBRIUM, MARKET FAILURE, MARKET FAILURES, MARKET INEFFICIENCIES, MARKET LIQUIDITY, MARKET MICROSTRUCTURE, MARKET PARTICIPANTS, MARKET PLAYERS, MARKET PRICES, MARKET SEGMENTATION, MARKET SPECIALISTS, MATURITY, MATURITY MISMATCH, MATURITY MISMATCHES, MONETARY FUND, MONETARY POLICY, MORAL HAZARD, OPEN ECONOMY, PARTICIPATIONS, PECUNIARY EXTERNALITIES, POLITICAL ECONOMY, PORTFOLIOS, PRIVATE CAPITAL, PROVISIONING RULES, PRUDENTIAL REGULATION, PRUDENTIAL REGULATIONS, PUBLIC DEBT, PUBLIC INVESTMENT, PUBLIC POLICY, RAPID GROWTH, REAL ESTATE, REGULATOR, REGULATORS, REGULATORY APPROACHES, REGULATORY CONSTRAINTS, REGULATORY FRAMEWORK, REGULATORY REGIMES, REGULATORY SYSTEM, REGULATORY TREATMENT, RELATIONSHIP LENDING, REPAYMENT, REPUTATION, RETURN, RETURNS, RISK ASSESSMENTS, RISK AVERSION, RISK MANAGEMENT, RISK NEUTRAL, RISK SHARING, RISK TAKING, RISK WEIGHTS, SAFETY, SAFETY NET, SAVINGS, SECONDARY MARKETS, SECURITIES, SECURITIES MARKET, SECURITIES MARKET REGULATIONS, SECURITIZATION, SOCIAL BENEFITS, SOCIAL COSTS, SOCIAL RISKS, SUPERVISORY AGENCY, SYSTEMIC INSTABILITY, SYSTEMIC RISK, SYSTEMIC RISKS, TAX, TAX RATE, TAX SYSTEM, TRADITIONAL BANKING, TRANSACTION, TRANSACTION COSTS, TRANSPARENCY, VOLATILITY, WHOLESALE FINANCE, WHOLESALE FUNDING, WHOLESALE INVESTORS, WORLD ECONOMY,
Online Access:http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20110105150802
http://hdl.handle.net/10986/3296
Tags: Add Tag
No Tags, Be the first to tag this record!