IDEAS home Printed from https://ideas.repec.org/p/hal/journl/halshs-02973765.html
   My bibliography  Save this paper

Sound At Last? Assessing a Decade of Financial Regulation

Author

Listed:
  • Patrick Bolton

    (Columbia University [New York], CEPR - Center for Economic Policy Research)

  • Stephen Cecchetti

    (Brandeis International Business School, CEPR - Center for Economic Policy Research)

  • Jean-Pierre Danthine

    (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, CEPR - Center for Economic Policy Research)

  • Xavier Vives

    (IESE Business School, CEPR - Center for Economic Policy Research)

Abstract

What has changed since the 2007-2009 crisis to ensure that the financial system is sound at last? Is regulatory reform going in the right direction? Has it run its course? This report tackles three important areas of post-crisis regulatory reform: the Basel III agreement on capital, liquidity and leverage requirements; resolution procedures to end ‘too big to fail'; and the expanded role of central banks with a financial stability remit. The report starts by noting that narrow banking will not overcome the fragility of the system; if it were to be implemented, fragility would resurface elsewhere in the financial system. While there have been improvements in financial regulation and supervision during the decade since the global financial crisis, there is still much to be done:• Prudential regulation should take a holistic approach, setting requirements for capital, liquidity and disclosure together and taking account of the competitive conditions of the industry. This approach casts doubt on the need for two liquidity ratios as currently envisaged.• Stress tests are very useful if well designed – they must be severe, flexible and not overly transparent. However, effective stress tests can only be implemented when there is a backstop for the banking system, as the case of the euro area shows.• To ensure that an ever-changing financial system remains resilient, authorities need a framework to monitor, assess, designate, regulate and supervise entities outside the perimeter of regulation. This applies to shadow banking and new digital competitors.• Resolution needs liquidity support but current procedures are lacking, particularly in the euro area. The report points at the difficulties of implementing the ‘single point of entry' model of resolution.• Central banks have to recover their traditional financial stability remit, and these more powerful central banks need strengthened accountability and democratic legitimacy. The authors tend to favour endowing the central bank with macroprudential authority, along with the appropriate tools. More intensive coordination between monetary and fiscal authorities is needed, particularly when the zero lower bound for interest rates is reached.

Suggested Citation

  • Patrick Bolton & Stephen Cecchetti & Jean-Pierre Danthine & Xavier Vives, 2019. "Sound At Last? Assessing a Decade of Financial Regulation," Post-Print halshs-02973765, HAL.
    • Handle: RePEc:hal:journl:halshs-02973765
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Pierre Durand & Gaëtan Le Quang, 2021. "What do bankrupcty prediction models tell us about banking regulation? Evidence from statistical and learning approaches," EconomiX Working Papers 2021-2, University of Paris Nanterre, EconomiX.
    2. Roberts, Daniel & Sarkar, Asani & Shachar, Or, 2023. "Liquidity regulations, bank lending and fire-sale risk," Journal of Banking & Finance, Elsevier, vol. 156(C).
    3. Carletti, Elena & Claessens, Stijn & Fatás, Antonio & Vives, Xavier (ed.), 2020. "Barcelona Report 2 - The Bank Business Model in the Post-Covid-19 World," Vox eBooks, Centre for Economic Policy Research, number p329.
    4. Durand, Pierre & Le Quang, Gaëtan, 2022. "Banks to basics! Why banking regulation should focus on equity," European Journal of Operational Research, Elsevier, vol. 301(1), pages 349-372.
    5. Alin Marius Andries & Anca Maria Podpiera & Nicu Sprincean, 2022. "Central Bank Independence and Systemic Risk," International Journal of Central Banking, International Journal of Central Banking, vol. 18(1), pages 81-130, March.
    6. Kristin J. Forbes, 2021. "The International Aspects of Macroprudential Policy," Annual Review of Economics, Annual Reviews, vol. 13(1), pages 203-228, August.
    7. Gu, Jiadong, 2023. "Optimal stress tests and liquidation cost," Journal of Economic Dynamics and Control, Elsevier, vol. 146(C).
    8. Frédéric CHERBONNIER & Ulrich HEGE, 2020. "Carbon Policies and Climate Financial Regulation," Working Paper b08f5c14-94fc-4ccc-b857-6, Agence française de développement.
    9. repec:zbw:bofitp:2020_013 is not listed on IDEAS

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:journl:halshs-02973765. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CCSD (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.