The Regulatory Response to the Financial Crisis

25 Pages Posted: 25 Mar 2008

See all articles by Charles Goodhart

Charles Goodhart

London School of Economics & Political Science (LSE) - Financial Markets Group

Date Written: March 2008

Abstract

There are, at least, seven aspects relating to financial regulation where the recent, and still current, financial turmoil has thrown up issues for discussion. These include: 1. The scale and scope of deposit insurance; 2. Bank insolvency regimes, also known as 'prompt corrective action'; 3. Money market operations by Central Banks; 4. Commercial bank liquidity risk management; 5. Procyclicality of capital adequacy requirements (and mark-to-market), Basel II; lack of counter-cyclical instruments; 6. Boundaries of regulation, conduits, SIVs and reputational risk; 7. Crisis management: - (a) domestic, within countries, e.g. UK Tripartite Committee; (b) cross-border; how to bear the burden of cross-border defaults? This paper describes how the current crisis has exposed regulatory failings, drawing largely on recent UK experience, and suggests what remedial action might be undertaken.

Keywords: financial regulation, bank insolvency, deposit insurance, liquidity, Basel II, procyclicality

JEL Classification: E42, E44, G18, G28

Suggested Citation

Goodhart, Charles A.E., The Regulatory Response to the Financial Crisis (March 2008). CESifo Working Paper Series No. 2257. Available at SSRN: https://ssrn.com/abstract=1113002

Charles A.E. Goodhart (Contact Author)

London School of Economics & Political Science (LSE) - Financial Markets Group ( email )

Houghton Street
London WC2A 2AE
United Kingdom
0207 955 7555 (Phone)
0207 242 1006 (Fax)

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