Banking Regulations after the Global Financial Crisis, Good Intentions and Unintended Evil

European Financial Management, Forthcoming

26 Pages Posted: 16 Mar 2013

Multiple version iconThere are 3 versions of this paper

Date Written: March 15, 2013

Abstract

In this essay, we analyze the impact of the capital and liquidity regulations and call attention to the fact that the banks’ responses might create unintended evil: a reduced supply of bank loans, incentives to securitize assets, and adverse incentives on bank risk monitoring.

The conclusion is that privately-based mechanisms that put most creditors at risk are the best way to increase the safety and soundness of banking markets. It is argued that interbank debt should be put at risk because banks have a comparative advantage in risk monitoring. As putting short-term interbank at risk increases the danger of sudden deposit withdrawals, a mechanism is needed to extend the maturity of short-term debt at the time of a credit-led panic.

Keywords: banking, bank regulation

JEL Classification: G21, G28

Suggested Citation

Dermine, Jean, Banking Regulations after the Global Financial Crisis, Good Intentions and Unintended Evil (March 15, 2013). European Financial Management, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2233808

Jean Dermine (Contact Author)

INSEAD - Finance ( email )

Boulevard de Constance
F-77305 Fontainebleau Cedex
France
+33 1 60 72 41 33 (Phone)

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