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Towards a General Theory of Financial Regulation: Predicting, Measuring and Preventing Financial Crises

Carolyn Currie

No 142, Working Paper Series from Finance Discipline Group, UTS Business School, University of Technology, Sydney

Abstract: Regulatory failure causing financial crises has occurred with great frequency in the last ten years in both advanced and emerging nations. Theories of regulation have failed to define and describe the meanings of deregulation, the range of regulatory models and their goals, the significance of regulatory failure, how to measure it and how to prevent it. This paper is motivated by the perception that incorrect design and failure to conduct ongoing performance monitoring of regulatory models in emerging economies as well as in some advanced industrial states is precipitating financial crises. Deregulation is redefined in a framework that recognises the diversity between financial systems that exists due to differences in regulatory models, in the ability to comply with best international structure, in the ownership of the means of production and in the calibre of human and social capital, within the framework of the limiting features of government goals and economic resources and infrastructure. Case studies of regulatory failure in an advanced and an emerging nation illustrate the necessity for a staged approach to liberalisation of a financial system, which takes account of the capacity of the underlying economy and society to conduct effective prudential supervision before attempts are made to remove protective measures. The comparison of fin de millennium solutions in advanced nations of integrated supervisors also illustrates the correct embodiment of government goals in regulatory models and the importance of feedback mechanisms such as the establishment of early warning systems.

Keywords: regulatory failure; regulatory models, deregulation (search for similar items in EconPapers)
JEL-codes: K2 N20 N40 P00 (search for similar items in EconPapers)
Date: 2005-05-01
New Economics Papers: this item is included in nep-cwa, nep-law and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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