An Integrated Framework for Analyzing Multiple Financial Regulations

Charles A. E. Goodhart, Anil Kashyap, Dimitrios Tsomocos and Alexandros P. Vardoulakis
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Charles A. E. Goodhart: Financial Markets Group, London School of Economics
Alexandros P. Vardoulakis: European Central Bank and Banque de France

International Journal of Central Banking, 2013, vol. 9, issue 1, 109-144

Abstract: In this companion paper to Goodhart et al. (2012), we explore the interactions of various types of financial regulation. We find that regulations that control fire-sale risk are critical for delivering financial stability and improving the welfare of savers and borrowers. We describe the combinations of capital regulations, margin requirements, liquidity regulation, and dynamic provisioning that are most effective in this respect. A policy featuring margin requirements together with countercyclical capital requirements delivers equal or better outcomes for the economy than does an unregulated financial system. But it is easy to produce combinations of regulation that look sensible but, when combined, have adverse effects on the economy.

JEL-codes: G38 L51 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (55)

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