The Way Forward

David Mayes, Liisa Halme and Aarno Liuksila

Chapter 11 in Improving Banking Supervision, 2001, pp 256-268 from Palgrave Macmillan

Abstract: Abstract It has been our purpose in this book to explore whether, in the light of lessons from financial crises over the last decade or so and the way in which financial markets appear likely to develop in coming years, there are significant areas in which the framework of banking supervision could be improved — particularly in the European Economic Area. We have highlighted two main areas where considerable progress can be made The implementation of considerably more market discipline; The improvement of the powers to resolve difficulties in individual banks. While the second of these may appear to lie beyond the scope of supervision as such, it is an essential component of the framework of incentives needed to encourage prudent behaviour in banks. The message from many recent crises is that banks will be bailed out, particularly if they are large. This reduces the incentive to prudence and creates a ‘moral hazard’ that needs to be countered.

Keywords: Corporate Governance; Credit Risk; Market Risk; Public Disclosure; Market Discipline (search for similar items in EconPapers)
Date: 2001
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-0-230-28819-5_11

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DOI: 10.1057/9780230288195_11

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