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Post-crisis regulatory reform in banking: Address insolvency risk, not illiquidity!

Anjan V. Thakor

Journal of Financial Stability, 2018, vol. 37, issue C, 107-111

Abstract: An extensive review of the evidence related to the 2007–09 crisis reveals that it was an insolvency risk crisis, not a liquidity crisis. The appropriate post-crisis regulatory reform should therefore focus on increasing capital requirements. The Basel III liquidity requirements do not serve a useful economic purpose in dealing with the root causes of the stresses that led to the 2007–09 crisis, and unnecessarily constrain the asset transformation and liquidity creation roles of banks to the detriment of economic growth.

Keywords: Liquidity risk; Insolvency risk; Post-crisis regulatory reform (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1016/j.jfs.2018.03.009

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