After the Fall : A New Framework to Regulate 'Too Big to Fail' Non-Bank Financial Institutions
The goal of any financial regulatory system should be to enable well-functioning markets, which includes reducing the impact and frequency of financial institution failures that cause systemic risk. Any regulatory structure, however, inevitably involves tradeoffs. A policy that effectively reduces systemic risk and its associated costs might also increase moral hazard. Similarly, a policy that seeks to reduce moral hazard and maintain market discipline - for example, by allowing a large interconnected institution such as Lehman to fail - might also create uncertainty, which can harm markets by creating panic. In this Note I argue that our current regulatory structure is sub-optimal in its regulation of systemic risk. A different regulatory structure could do a better job of reducing the systemic risk caused by failing non-bank financial institutions while minimizing the attendant problems caused by the regulations themselves: moral hazard and uncertainty. New regulation could strike a superior balance by establishing more stringent ex ante prudential regulations of systemically important non-bank financial institutions aimed at curbing excessive risk-taking and by implementing a regulatory process to resolve the failure of such institutions. The Obama administration has proposed regulatory reform that endorses such beneficial changes, but certain details in the proposal fall short. Instead, I propose specific modifications to the administration’s proposal to produce a more optimal regulatory framework. By examining and pinpointing the strengths and weaknesses of the administration’s proposal, I formulate a regulatory framework that more effectively contains systemic risk without increasing moral hazard and while reducing excessive uncertainty caused by the regulation
Year of publication: |
2010
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Authors: | Hashmall, Alison |
Publisher: |
[S.l.] : SSRN |
Subject: | Bankenregulierung | Bank regulation | Finanzkrise | Financial crisis | Welt | World | Regulierung | Regulation | Finanzsektor | Financial sector | Bankinsolvenz | Bank failure | Wirtschaftskrise | Economic crisis | Großbank | Large bank |
Saved in:
freely available
Extent: | 1 Online-Ressource (40 p) |
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Type of publication: | Book / Working Paper |
Language: | English |
Notes: | In: New York University Law Review Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments January 23, 2010 erstellt |
Other identifiers: | 10.2139/ssrn.1541168 [DOI] |
Source: | ECONIS - Online Catalogue of the ZBW |
Persistent link: https://www.econbiz.de/10014198728
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