The Regulatory Responses to the Global Financial Crisis: Some Uncomfortable Questions

Stijn Claessens () and Laura Kodres

No 2014/046, IMF Working Papers from International Monetary Fund

Abstract: We identify current challenges for creating stable, yet efficient financial systems using lessons from recent and past crises. Reforms need to start from three tenets: adopting a system-wide perspective explicitly aimed at addressing market failures; understanding and incorporating into regulations agents’ incentives so as to align them better with societies’ goals; and acknowledging that risks of crises will always remain, in part due to (unknown) unknowns – be they tipping points, fault lines, or spillovers. Corresponding to these three tenets, specific areas for further reforms are identified. Policy makers need to resist, however, fine-tuning regulations: a “do not harm” approach is often preferable. And as risks will remain, crisis management needs to be made an integral part of system design, not relegated to improvisation after the fact.

Keywords: WP; risk; market; bank; capital; OTC derivatives market; Financial crises; regulation; systemic risks; macroprudential policies; market participant; market discipline; market intelligence; party repo market; financial system stress tests; market infrastructure; market signal; moribund securitization market; intra-day counterparty risk; counterparty risk; securitization market; Systemic risk; Shadow banking; Liquidity requirements; Global (search for similar items in EconPapers)
Pages: 39
Date: 2014-03-14
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Citations: View citations in EconPapers (55)

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