The Web of Financial Regulation: Banking Crises, Symbiotic Rules, and Holistic Reform

Abstract

Early last year, a series of spectacular bank failures shocked the world of financial regulation. The crisis rekindled the fires of old debates and the fervor for new reforms: members of Congress proposed at least 28 separate bills, the banking agencies issued long reports suggesting novel regulatory measures, pundits penned scores of passionate op-eds, and academics and attorneys published voluminous articles. But while each senator, regulator, editorialist, and professor had his or her own favorite area of interest, few analyzed the ways that these varied policy devices would interact. This paper attempts first to categorize and chronicle the family of new proposals that the 2023 banking crisis generated—including changes to deposit insurance, liquidity regulation, capital regulation, corporate governance, and supervision and oversight—and then to map some of the relationships between these ideas. While those links do not show exactly what set of regulations Congress and the fractured banking agencies should adopt, they do illustrate how lawmakers should think: instead of considering each tool in isolation, the regulators should work together to create a comprehensive package of interlocking reforms.

Keywords: Financial regulation; capital regulation; liquidity; banking law; law and economics; administrative law

JEL Classification: G01, G1, G18, G2, G21, G22, G24, G28, G38, K23, L5