The Theory of Financial Stability Meets Reality

Nina Boyarchenko, Kinda Hachem and Anya V. Kleymenova
Additional contact information
Anya V. Kleymenova: https://www.federalreserve.gov/econres/anya-v-kleymenova.htm

No 1155, Staff Reports from Federal Reserve Bank of New York

Abstract: A large literature at the intersection of economics and finance offers prescriptions for regulating banks to increase financial stability. This literature abstracts from the discretion that accounting standards give banks over financial reporting, creating a gap between the information assumed to be available to regulators in models of optimal regulation and the information available to regulators in reality. We bridge insights from the economics, finance, and accounting literatures to synthesize knowledge about the design and implementation of bank regulation and identify areas where more work is needed. We present a simple framework for organizing the relevant ideas, namely the externalities that motivate bank regulation, the rationales for allowing accounting discretion, and the use of discretion to circumvent regulation. Our takeaway from reviewing work in these areas is that academic studies of bank regulation and accounting discretion require a more unified approach to design optimal policy for the real world.

Keywords: bank regulation; accounting discretion; regulatory arbitrage; financial stability; optimal policy (search for similar items in EconPapers)
JEL-codes: D62 E44 G21 G28 M41 (search for similar items in EconPapers)
Pages: 65
Date: 2025-06-01
New Economics Papers: this item is included in nep-acc
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr1155.pdf Full text (application/pdf)
https://www.newyorkfed.org/research/staff_reports/sr1155.html Summary (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fednsr:101174

Ordering information: This working paper can be ordered from

DOI: 10.59576/sr.1155

Access Statistics for this paper

More papers in Staff Reports from Federal Reserve Bank of New York Contact information at EDIRC.
Bibliographic data for series maintained by Gabriella Bucciarelli ().