A key feature of the 2007-2008 financial crisis is that for some classes of securities trade has ceased. And where trade does occur, it appears that market prices are well below what one might believe to be the intrinsic value for that class of security. This seems to be especially true for...

Starting from the agent-based decentralized matching macroeconomic model proposed in Riccetti et al. (2012), we explore the effects of banking regulation on macroeconomic dynamics. In particular, we study the overall credit exposure and the lending concentration towards a single counterparty,...

Interconnectedness is an inherent feature of the modern financial system. While it contributes to efficiency of financial services, it also creates structural vulnerabilities: pernicious shock transmission and amplification impacting banks' capitalization. This has recently been seen during the...

U.S. financial regulation has traditionally made functional and institutional regulation roughly equivalent. However, the gradual shift away from Glass-Steagall and the introduction of the Financial Modernization Act (FMA) generated a disorderly mix of functions and products across institutions,...

The paper discusses the reform of capital regulation of banks in the wake of the financial crisis of 2007/2009. Whereas the Basel Committee on Banking Supervision seems to go for marginal changes here and there, the paper calls for a thorough overhaul, moving away from risk calibration and...

The recent financial crisis has shown that financial innovation can have devastating systemic impacts. International standard setters' and national regulators' response has been a global concerted effort to overhaul and tighten financial regulations. However, at a time of designing stricter...

This paper discusses the role of state intervention for prevention, containment, and resolution of financial crises based mainly on the Korean experience during the 1997 Asian financial crisis. Crises in emerging market and developing economies tend to be more complicated than those faced by...

The ongoing global economic crisis has punished Asian economies severely, despite the fact that its origins derive from outside the region. The global economic crisis was transmitted through real and financial channels, underscoring how vulnerable the region is to external shocks. This paper...

This paper examines the motivation for, and the success of, regional efforts in Asia to promote local currency bond markets. The analysis demonstrates that Asian local currency bond markets made substantial gains as a region going into the current global financial crisis. However, we argue that...

The failure to spot emerging systemic risk and prevent the current global financial crisis warrants a reexamination of the approach taken so far to crisis prevention. The paper argues that financial crises can be prevented, as they build up over time due to policy mistakes and eventually erupt...