Understanding the Shift from Micro to Macro-Prudential Thinking: A Discursive Network Analysis

SAFE Working Paper No. 136

38 Pages Posted: 10 May 2016

See all articles by Matthias Thiemann

Matthias Thiemann

Goethe University Frankfurt

Mohamed Aldegwy

Goethe University Frankfurt, House of Finance, Students

Edin Ibrocevic

Goethe University Frankfurt, Students

Date Written: May 9, 2016

Abstract

While some economists argued for macro-prudential regulation pre-crisis, the macro-prudential approach and its emphasis on endogenously created systemic risk have only gained prominence post-crisis. Employing discourse and network analysis on samples of the most cited scholarly works on banking regulation as well as on systemic risk (60 sources each) from 1985 to 2014, we analyze the shift from micro to macro-prudential thinking in the shift to the post crisis period. Our analysis demonstrates that the predominance of formalism, particularly, partial equilibrium analysis along with the exclusion of historical and practitioners’ styles of reasoning from banking regulatory studies impeded economists from engaging seriously with the endogenous sources of systemic risk prior to the crisis. Post-crisis, these topics became important in this discourse, but the epistemological failures of banking regulatory studies pre-crisis were not sufficiently recognized. Recent attempts to conceptualize and price systemic risk as a negative externality point to the persistence of formalism and equilibrium thinking, with its attending dangers of incremental innovation due to epistemological barriers constrains theoretical progress, by excluding observed phenomena, which cannot yet be accommodated in mathematical models.

Keywords: Banking Regulation, Systemic Risk, Formalism, Equilibrium Thinking, Discourse, Citation Network Analysis

JEL Classification: B40, B41, G18, G28

Suggested Citation

Thiemann, Matthias and Aldegwy, Mohamed and Ibrocevic, Edin, Understanding the Shift from Micro to Macro-Prudential Thinking: A Discursive Network Analysis (May 9, 2016). SAFE Working Paper No. 136. Available at SSRN: https://ssrn.com/abstract=2777484 or http://dx.doi.org/10.2139/ssrn.2777484

Matthias Thiemann (Contact Author)

Goethe University Frankfurt ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

Mohamed Aldegwy

Goethe University Frankfurt, House of Finance, Students ( email )

Frankfurt
Germany

Edin Ibrocevic

Goethe University Frankfurt, Students ( email )

Frankfurt
Germany

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