By Mathias Dewatripont, Visit Amazon's Jean-Charles Rochet Page, search results, Learn about Author Central, Jean-Charles Rochet, , Jean Tirole, Keith Tribe
The monetary trouble that started in 2007 within the usa swept the area, generating colossal financial institution disasters and forcing unparalleled country relief for the crippled worldwide economic climate. Bringing jointly 3 major monetary economists to supply a global point of view, Balancing the Banks attracts severe classes from the explanations of the concern and proposes vital regulatory reforms, together with sound instructions for the ways that distressed banks will be handled sooner or later. whereas a few contemporary coverage strikes pass within the correct course, others, the publication argues, should not adequate to avoid one other difficulty. The authors convey the need of an adaptive prudential regulatory method which may greater tackle monetary innovation. Stressing the varied and intricate demanding situations confronted by means of politicians, finance execs, and regulators, and calling for bolstered foreign coordination (for instance, within the therapy of distressed banks), the authors positioned forth a few ideas to accommodate matters in regards to the monetary incentives of economic associations, the effect of financial shocks, and the function of political constraints. providing an international viewpoint, Balancing the Banks may be learn by means of someone serious about fixing the present challenge and fighting one other such calamity sooner or later.
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Additional info for Balancing the Banks: Global Lessons from the Financial Crisis
Second, doubt about the value of assets transforms into doubt about the soundness of the institutions holding them. In the recent crisis, those economic agents that had excess liquidity be46 A CDS is a financial instrument insuring the buyer against default on a given piece of debt. The buyer pays a stream of fees in exchange for the insurance. ” Since Akerlof’s pioneering work in 1970 such markets have been extensively studied. Lessons from the Crisis • 35 come reluctant to lend it to those that needed cash.
Lessons from the Crisis • 39 navian approach was to take the banks under the wing of the state, recapitalize them,59 attempt to run them on essentially commercial lines so as to minimize the final cost to the taxpayer, and then resell their assets as soon as possible in the form of an initial public offering or a negotiated sale. This approach allows the state to supervise and control risk, but creates a managerial problem, as government representatives usually do not have the knowledge or the proper incentives to run the business (they also have to be able to resist political pressure seeking to make use of a nationalized bank for industrial policy, pork barrel, and so forth).
They not only lacked information about the risks attached to the new products but also let themselves be lobbied by the industry; see, for example, the aptly titled chapter “Dancing around Regulators” in Tett (2009) for a history of the debate on the regulation of derivatives. For more on this topic, see chapter 3 in this volume. The Procyclical Nature of Regulation Capital requirements are in principle invariant through the cycle. 5 dollars of assets weighted according to risk, no matter what the state of the economy might be.
Balancing the Banks: Global Lessons from the Financial Crisis by Mathias Dewatripont, Visit Amazon's Jean-Charles Rochet Page, search results, Learn about Author Central, Jean-Charles Rochet, , Jean Tirole, Keith Tribe