The Regulatory Responses to the Global Financial Crisis: Some Uncomfortable Questions

40 Pages Posted: 10 Apr 2014

See all articles by Stijn Claessens

Stijn Claessens

Bank for International Settlements (BIS)

Laura E. Kodres

International Monetary Fund (IMF) - Research Department

Date Written: March 2014


We identify current challenges for creating stable, yet efficient financial systems using lessons from recent and past crises. Reforms need to start from three tenets: adopting a system-wide perspective explicitly aimed at addressing market failures; understanding and incorporating into regulations agents’ incentives so as to align them better with societies’ goals; and acknowledging that risks of crises will always remain, in part due to (unknown) unknowns – be they tipping points, fault lines, or spillovers. Corresponding to these three tenets, specific areas for further reforms are identified. Policy makers need to resist, however, fine-tuning regulations: a “do not harm” approach is often preferable. And as risks will remain, crisis management needs to be made an integral part of system design, not relegated to improvisation after the fact.

Keywords: Financial systems, Fiscal risk, Financial crisis, Fiscal policy, Fiscal reforms, Macroprudential Policy, Monetary policy, Risk management, Financial crises, regulation, systemic risks, macroprudential policies, financial stability, financial institutions, financial services, financial markets, financial sector, financial intermediation, derivatives markets, financial regulation, moral hazard, financial reform, financial reforms, deposit insurance, international financial markets, money market, financial regulations, stock price, financial liberalization, financial sector performance, financial innovation, derivatives exchanges, futures contracts, stock prices, financial statements, internati

JEL Classification: F55, G01, G10, G15, G18, G21, G28, F30, H12, M40

Suggested Citation

Claessens, Stijn and Kodres, Laura E., The Regulatory Responses to the Global Financial Crisis: Some Uncomfortable Questions (March 2014). IMF Working Paper No. 14/46, Available at SSRN:

Stijn Claessens (Contact Author)

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
CH-4002 Basel

Laura E. Kodres

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-6161 (Phone)
202-623-6339 (Fax)

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