Regulatory Reform: Integrating Paradigms

International Finance, Vol 13, Issue 1, Spring 2010, pp. 109-139, DOI: 10.1111/j.1468-2362.2010.01254

31 Pages Posted: 8 Nov 2012 Last revised: 3 Jan 2013

See all articles by Augusto de la Torre

Augusto de la Torre

UDLA, Centro de Investigaciones Económicas; Columbia University, SIPA

Alain Ize

World Bank

Multiple version iconThere are 2 versions of this paper

Date Written: March 1, 2010


What were the market and regulatory issues that led to the subprime crisis? How should prudential regulation be fixed? The answers depend on the interpretive lenses – or ‘paradigms’ – through which one sees finance. The agency paradigm, which has dominated recent regulatory policy and provides the most popular interpretation of the crisis, seems to be influencing much of the emerging reform agenda. But collective welfare failures (particularly externalities) and collective cognition failures (particularly mood swings) were as important, if notmore so, in driving the crisis. These three paradigms should therefore be integrated into a more balanced policy agenda. But doing so will be difficult because they often have inconsistent policy implications.

Keywords: financial crises, financial policy, financial regulation, financial development, regulatory architecture

JEL Classification: G01, G18, G28, G38

Suggested Citation

de la Torre, Augusto and Ize, Alain, Regulatory Reform: Integrating Paradigms (March 1, 2010). International Finance, Vol 13, Issue 1, Spring 2010, pp. 109-139, DOI: 10.1111/j.1468-2362.2010.01254, Available at SSRN:

Augusto De la Torre (Contact Author)

UDLA, Centro de Investigaciones Económicas ( email )

De los Granados y De los Colimes, Esquina
Quito, Pichincha

Columbia University, SIPA ( email )

420 West 118th Street
New York, NY
United States

Alain Ize

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

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