Regulating for Financial System Development, Financial Institutions Stability, and Financial Innovation

Financial Market Regulation in the Wake of Financial Crises: The Historical Experience Conference p. 225, 2009

16 Pages Posted: 8 Jul 2012

See all articles by Joseph R. Mason

Joseph R. Mason

Louisiana State University - Ourso School of Business; University of Pennsylvania - Wharton Financial Institutions Center

Multiple version iconThere are 2 versions of this paper

Date Written: April 16, 2009

Abstract

The issues in today’s crisis – and indeed in the most important crises, historically – can best be understood as a manifestation of asymmetric information in an environment of rapid financial innovation. The present paper reviews the asymmetric information and financial innovation frameworks and applies those to major twentieth century U.S. financial crises. The paper posits that financial innovations inexorably create conditions of asymmetric information that can lead to financial crises and panics. Those events are crucial to the development of plain vanilla financial instruments, providing incentives to forgo margins in favor of liquidity. Regulatory attempts to stabilize markets by manipulating bank failures may ultimately result in substantial setbacks to market development.

JEL Classification: E50, G20, N20

Suggested Citation

Mason, Joseph R., Regulating for Financial System Development, Financial Institutions Stability, and Financial Innovation (April 16, 2009). Financial Market Regulation in the Wake of Financial Crises: The Historical Experience Conference p. 225, 2009, Available at SSRN: https://ssrn.com/abstract=2101731

Joseph R. Mason (Contact Author)

Louisiana State University - Ourso School of Business

2900 Business Education Complex
Baton Rouge, LA 70803
United States
202-683-8909 (Phone)

University of Pennsylvania - Wharton Financial Institutions Center ( email )

3641 Locust Walk
Philadelphia, PA 19104-6218
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
79
Abstract Views
910
rank
50,431
PlumX Metrics