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

Author/Editor: Stijn Claessens | Laura E. Kodres
Authorized for Distribution: March 14, 2014
Electronic Access: Free Full Text (PDF file size is 446KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: 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.
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Series: Working Paper No. 14/46
Subject(s): Financial systems | Fiscal risk | Financial crisis | Fiscal policy | Fiscal reforms | Macroprudential Policy | Monetary policy | Risk management
    Published:   March 14, 2014        
    ISBN/ISSN:   9781484335970/1018-5941   Format:   Paper
    Stock No:   WPIEA2014046   Pages:   39
    Price:   US$18.00
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