Regulation of Large Financial Institutions: Lessons from Corporate Finance Theory

John P. Harding and Stephen Ross
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John P. Harding: University of Connecticut

No 2009-29, Working papers from University of Connecticut, Department of Economics

Abstract: Equity capital is the shock absorber for our financial system and the current financial crisis, like a bumpy road for an auto designer, provides a unique opportunity for financial regulators to evaluate the predictions of theory and improve the design of the regulatory system. The purpose of this paper is to apply a simple model of firm capital structure to the current situation and summarize the insights it provides regarding the regulation of large financial institutions in a post-crisis world. The paper begins with a brief summary of the model and uses the results of that model to place the evolution of the current crisis into perspective. The paper concludes with forward-looking observations and suggestions for future regulation.

Keywords: Financial Institutions; Financial Crisis; Capital Regulation; Regulatory Reform; Firm Capital Structure (search for similar items in EconPapers)
JEL-codes: G2 L5 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2009-09
New Economics Papers: this item is included in nep-fmk and nep-reg
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:uct:uconnp:2009-29

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