Abstract

http://ssrn.com/abstract=1757711
 
 

Citations (1)



 


 



Market Failures and Regulatory Failures: Lessons from Past and Present Financial Crises


Viral V. Acharya


New York University - Leonard N. Stern School of Business; Centre for International Finance and Regulation (CIFR); Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER); New York University (NYU) - Department of Finance

Thomas F. Cooley


New York University - Leonard N. Stern School of Business; National Bureau of Economic Research (NBER)

Matthew P. Richardson


New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER)

Ingo Walter


New York University - Leonard N. Stern School of Business; New York University (NYU) - Department of Finance

February 8, 2011

ADBI Working Paper No. 264

Abstract:     
The paper analyzes the financial crisis of 2007-2009 through the lens of market failures and regulatory failures and presents a case that there were four primary failures contributing to the crisis: excessive risk-taking in the financial sector due to mispriced government guarantees; regulatory focus on individual institution risk rather than systemic risk; opacity of positions in financial derivatives that produced externalities from individual firm failures; and runs on the unregulated banking sector that eventually threatened to bring down the entire financial sector. In emphasizing the role of regulatory failures, the paper provides a description of regulatory evolution in response to the panic of 1907 and the Great Depression, why the regulation put in place then was successful in addressing market failures, but how, over time, especially around the resolutions of Continental Illinois, Savings and Loans crisis and the Long-Term Capital Management, expectations of too-big-to-fail status got anchored. The paper proposes specific reforms to address the four market and regulatory failures we identify, and we conclude with some lessons for emerging markets.

Number of Pages in PDF File: 41

Keywords: global financial crisis, LTCM, market failures, regulation, emerging markets

JEL Classification: E44, G01, G15, G18, G21, G24

working papers series


Download This Paper

Date posted: February 8, 2011  

Suggested Citation

Acharya, Viral V. and Cooley , Thomas F. and Richardson, Matthew P. and Walter, Ingo, Market Failures and Regulatory Failures: Lessons from Past and Present Financial Crises (February 8, 2011). ADBI Working Paper No. 264. Available at SSRN: http://ssrn.com/abstract=1757711 or http://dx.doi.org/10.2139/ssrn.1757711

Contact Information

Viral V. Acharya (Contact Author)
New York University - Leonard N. Stern School of Business ( email )
44 West 4th Street
New York, NY NY 10012
United States
HOME PAGE: http://pages.stern.nyu.edu/~sternfin/vacharya/public_html/~vacharya.htm
Centre for International Finance and Regulation (CIFR) ( email )
Level 7, UNSW CBD Campus
1 O'Connell Street
Sydney, NSW 2000
Australia

Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
New York University (NYU) - Department of Finance
Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
Thomas F. Cooley
New York University - Leonard N. Stern School of Business ( email )
44 West Fourth Street, 7-180
Room 7-85
New York, NY 10012
United States
212-998-0870 (Phone)
212-995-4218 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Computer Research Center
Cambridge, MA 02138
United States
Matthew P. Richardson
New York University (NYU) - Department of Finance ( email )
44 West 4th Street
Suite 9-190
New York, NY 10012-1126
United States
212-998-0349 (Phone)
212-995-4233 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Ingo Walter
New York University - Leonard N. Stern School of Business ( email )
44 West 4th Street
New York, NY 10012
United States
212-998-0707 (Phone)
212-995-4220 (Fax)
New York University (NYU) - Department of Finance
Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
Feedback to SSRN


Paper statistics
Abstract Views: 2,097
Downloads: 541
Download Rank: 27,079
Citations:  1

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo2 in 0.297 seconds