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How to prevent a new global financial crisis

Victor Beker ()

No 4309, Asociación Argentina de Economía Política: Working Papers from Asociación Argentina de Economía Política

Abstract: The main issue addressed in this paper is whether a new financial crisis can be avoided. After reviewing the key elements that were present in the 2007/2009 financial crisis, there is an analysis of the regulatory reforms which took place during and after the financial meltdown. The role played in it by the shadow banking system and the regulatory reforms dealing with it deserve particular attention. The regulatory reforms are assessed in the context of systemic risk and run vulnerability in order to recommend what should be done to prevent a new financial crisis from happening. A revision of what has already been done and what should be done in micro and macroprudential regulation completes the paper. The main conclusions are: 1) A key issue to avoid a new financial crisis is to prevent an excessive concentration of loans in any one sector, region or kind of assets of the economy. 2) The role of the central bank as lender of last resort should be reassessed in light of the experience of what has been done in the context of the COVID 19 pandemic. 3) In order to prevent managers from taking excessive risks using other people´s money, managerial compensation schemes should be changed. 4) Issues which have to do with the conflict of interests in the credit rating agencies are still waiting for better regulation.

Keywords: financial crisis; shadow banking system; micro-prudential regulation; macroprudential regulation; lender of last resort; dealer of last resort. (search for similar items in EconPapers)
JEL-codes: G01 G21 G23 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2020-11
New Economics Papers: this item is included in nep-cba, nep-cwa and nep-fdg
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