Institutional frameworks for financial stability

Yvonne Kreis, Dietmar Leisen and Jorge Ponce

Chapter 10 in Systemic Risk:History, Measurement and Regulation, 2019, pp 141-157 from World Scientific Publishing Co. Pte. Ltd.

Abstract: The implementation of prudential regulation and the execution of resolution policies face important institutional challenges. Basically, it implies a delegation of power to specific regulatory authorities. Delegation opens a series of principal-agent problems because the interests of a regulator (an agent) may not coincide with those of society (the principal). Hence, a clear specification of the agency’s mandates and tools, as well as correctly designed governance and accountability arrangements, are necessary to align incentives. The optimal design of the contract between society and regulators matters because it determines responsibilities, powers, constraints, and compensations. Also important is the architecture and institutional design of the safety net because it specifies the ways in which synergy among agencies must be exploited, as well as how checks and balances must operate…

Keywords: Systemic Risk; Financial Stability; Financial Regulation; Macro-Prudential Regulation; Transmission Channels; Global Financial Crisis; Risk Measurement; Cross-sectional Risk (search for similar items in EconPapers)
JEL-codes: G01 G15 G32 (search for similar items in EconPapers)
Date: 2019
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