The Banking Regulatory Bubble and How to Get Out of It

CERBE Working Paper No. 1

21 Pages Posted: 9 Apr 2019

See all articles by Giovanni Ferri

Giovanni Ferri

LUMSA University

Doris Neuberger

University of Rostock - Department of Economics

Date Written: May 15, 2014

Abstract

We claim that we currently live in a banking regulatory bubble. We review how: i) banking intermediation theory hinges on dealing with borrower-lender asymmetry of information; ii) instead, the presence of complete information is the keystone of the finance theory. Next, we document how finance theory prevailed over banking intermediation theory in shaping banking regulation: This appalling contradiction is the true culprit behind lower credit standards, mounting systemic risk in banking, and macroeconomic debt overhang. Consequently, we discuss actions that, by restoring the consistency of banking regulation with the theory of banking intermediation, would make banking sounder.

Keywords: Asymmetric Information, Relationship Lending vs Transactional Lending, Efficient Markets Hypothesis, Banking Regulation Inconsistencies, Basel II

JEL Classification: G01, G14, G21, G28

Suggested Citation

Ferri, Giovanni and Neuberger, Doris, The Banking Regulatory Bubble and How to Get Out of It (May 15, 2014). CERBE Working Paper No. 1. Available at SSRN: https://ssrn.com/abstract=3353900 or http://dx.doi.org/10.2139/ssrn.3353900

Giovanni Ferri (Contact Author)

LUMSA University ( email )

Via della Traspontina
Roma, Rome 00192
Italy

HOME PAGE: http://www.lumsa.it/giovanni-ferri

Doris Neuberger

University of Rostock - Department of Economics ( email )

Ulmenstr. 69
Rostock, 18057
Germany
+49 381 498 4346 (Phone)
+49 381 498 4341 (Fax)

Register to save articles to
your library

Register

Paper statistics

Downloads
7
Abstract Views
115
PlumX Metrics