Financial Regulation in a Changing World: Lessons from the Recent Crisis

Gerard Caprio

No 2009-01, Center for Development Economics from Department of Economics, Williams College

Abstract: The current crisis is leading many to re-think the role of finance and how it snew. This paper reviews what was regarded as the conventional wisdom on financial regulation prior to the 2007 onset of the crisis, briefly recounts some of the main factors behind the events of the 2007-09 years, and then turns to lessons for regulatory reform. At some point in the 1990s, the financial systems of high-income countries seemed to be functioning well and withstood some significant shocks, yet by 2007 much had changed. However, the regulatory structure did not change in response, and in fact eased in such a way as to exacerbate the instability that was subsequently experienced. A key theme is that financial regulation needs to be more dynamic, taking account of financial innovations and how they affect the sector. No such approach to regulation seems possible without greater accountability for regulators and attention to the incentives for those in the sector and for those who regulate it.

Keywords: Financial crisis; Securitization; Regulation and Supervision; Safety Nets (search for similar items in EconPapers)
JEL-codes: G21 G28 G32 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2009-09
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Citations: View citations in EconPapers (4)

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Working Paper: Financial Regulation in a Changing World: Lessons from the Recent Crisis (2009)
Working Paper: Financial Regulation in a Changing World: Lessons from the Recent Crisis (2009)
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