## _wp1446

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---

### Introduction: purpose and framing
- Objective: reduce the chance and costs of future systemic financial crises at the lowest costs to economic growth and welfare more generally.
- Core challenge: policy makers need to think more about the system as a whole when monitoring risks and designing reforms; many current frameworks remain silo-based and miss system-wide, endogenous risks.
- Needed approach: holistic reforms that examine interactions between and across institutions, markets, participants, jurisdictions, and across types of risks (market, credit, liquidity, operational).
- Implementation constraints: lack of specific analytical frameworks, limited appropriate data, and limited practical implementation/enforcement mechanisms.
- Suggested policymaking stance:
  - adopt a more “Bayesian” approach—implement reforms where knowledge is greater;
  - take an “experimental” approach and invest in data/analysis where knowledge is limited.
- Acceptance of limits: institutional, political, and other constraints affect final reform choices and enforcement; therefore enhance crisis management, resolution, and transparent burden sharing.

### Causes of the global financial crisis — synthesis
- Overall characterization: multiple, interlinked causes grouped into four "common" and four "new" causes.
- Common causes:
  - Credit booms / rapid financial expansion associated with deterioration in lending standards and high leverage; credit booms increase crisis likelihood.
  - Rapid asset price appreciation (notably housing): example preserved in source: "House prices in the United States rose more than 30 percent from 2003 to the onset of the crisis."
  - Creation and rapid growth of structured credit products (e.g., CDOs) with payoffs dependent on other assets; risks often not fully comprehended or were downplayed by institutional players such as rating agencies.
  - Financial liberalization and deregulation without commensurate supervisory capacity; regulatory/supervisory lag and political capture allowed risks—especially in the shadow banking system—to grow with little oversight.
- New causes:
  - Sharp rise in household leverage and widespread household defaults on housing loans; restoring household balance sheets will take a long time and extend recovery periods.
  - Increased leverage across agents and markets, reliance on finely priced, illiquid collateral leading to rapid collateral value declines; fear of counterparty defaults, high interconnected leverage, short funding liquidity and off-balance sheet exposures froze transactions and valuation.
  - Increased complexity and opacity from private-label securitization, derivatives growth, and shadow banking; complexity hindered valuation and risk identification.
  - Dramatic increase in international financial integration leading to rapid global transmission of turmoil; cross-border links complicated coordinated policy responses and may reflect "too much finance."
- Additional notes: other contributors suggested include too-loose monetary policy and fiscal weaknesses, but their roles relative to other causes remain unclear.

### Regulatory responses to date: progress and tools
- Institutional evolution: informal Basel group formalized through establishment of the Financial Stability Board (FSB) in April 2009 to coordinate national financial authorities and standard-setting bodies.
- Key reforms under FSB guidance:
  - Adoption of Basel III capital requirements, including a countercyclical capital buffer and a surcharge for globally systemically important financial institutions (G-SIFIs).
  - Direct textual excerpt in source: "The rules (see Basle Committee on Banking Supervision, BCBS, 2011) are: a 4.5 percent basic and a"
- Implementation caveats:
  - Progress is uneven across reform areas.
  - Rigorous theoretical analyses and empirical evidence on the impact of new regulations on reducing crisis risk remain in short supply.
  - Given inability to prevent all future crises, strengthening crisis management and resolution is integral to the reform agenda.

### 2.5 percent conservation buffer requirement; capital and liquidity architecture
- Reforms achieved:
  - Adoption of a 2.5 percent conservation buffer requirement for all banks.
  - A 2.5 percent countercyclical buffer in the boom phase.
  - For some banks (designated as systemic), an up to 2.5 percent systemic surcharge.
  - Altogether, the highest minimum requirement in the form of common equity (Tier 1) would be 12 percent.
- Additional capital components preserved exactly as in source:
  - 1.5 percent alternative Tier 1 equity.
  - 2 percent Tier 2 (hybrid) forms of capital.
- Ratios apply to risk-weighted assets; a simple leverage requirement (ratio of (common) equity to total assets) has also been adopted.
- Basel III requirements: better forms of capital, especially more core equity, rather than hybrid forms used before the crisis.
- Liquidity rules:
  - Agreement on the Liquidity Coverage Ratio (LCR): banks must have assets and access to facilities to cover 30 days of outflows.
  - Net Stable Funding Ratio (NSFR) remains under discussion.
- Other reforms and progress:
  - Identification of G-SIFIs and D-SIBs, higher capital adequacy requirements, more intense supervision, and some reforms of national resolution schemes (including bail-in instruments).
  - Securitization model enhancements: more disclosure by credit rating agencies; formal retention rules in various jurisdictions; consolidation of off-balance sheet vehicles.
  - Principles for sound compensation practices adopted.
  - Some convergence of accounting treatment under U.S. GAAP and IFRS agreed in principle.
  - Closure of some data gaps: harmonized consolidated data on bilateral counterparty and credit risks for major systemic banks (coverage for the major 18 G-SIBs and 6 other non-G-SIBs from 10 jurisdictions).
  - OTC derivatives reforms: requirements for reporting and centralized clearing of some types; guidelines and minimum standards for centralized counterparties (CCPs) by CPSS-IOSCO.

### Analytical framing: system-wide perspective and market failures
- Core analytical approach summarized under three themes:
  - Think system-wide and explicitly address market failures and externalities.
  - Improve incentives, individually and collectively, of all those involved in finance.
  - Collect more, higher quality data and conduct better analyses.
- System-wide necessities:
  - Regular public financial stability reviews, large scale stress tests, and integrated supervisory consideration of systemic consequences.
  - Microprudential regulation alone does not assure a safe financial system; fallacies of composition and interconnectedness can produce systemic risks.
  - Example: microprudential liquidity insurance arrangements across banks can leave aggregate liquidity risk intact.
  - A system-wide toolkit, some elements of which must be global, and institutions to assure risk monitoring and remedial actions.

### Improve incentives: targets and challenges
- Incentives framework should target:
  - Direct market participants: owners, creditors (including deposit insurance agencies), managers, staff, market participants, and end-users.
  - Auxiliary monitors: rating agencies, accounting and auditing firms, clearing houses, CCPs, the financial press, and whistleblowers.
  - Regulators and supervisors: address capture, lack of ex post cost for failures, and limited reward for early risk detection.
- Observations and remedies:
  - Rating agencies contributed to the crisis; reforms aim to remedy incentive conflicts.
  - Auxiliary monitors' effectiveness depends on incentives; reforms seek to align these.
  - Enhance national and international regulatory governance and accountability to anchor incentive-based approaches.

### Realize risks, known and unknown, will remain
- Key points:
  - Some risks will remain acceptable; a fully fail-proof financial system may not be efficient.
  - Tradeoffs exist between efficiency and stability given full information about risks.
  - Insuring against some risks explicitly may be inefficient and increase moral hazard.
  - More resources, analyses, and data can reduce unknown unacceptable risks but cannot eliminate all risks.
  - New sources and unforeseen interactions can generate systemic events, including “Black Swans.”
  - Contingency planning and flexibility in crisis response remain essential.

### Adapt approaches and avoid common fallacies; implementation tradeoffs
- Process recommendations:
  - Adopt frameworks for regular consultation and coordination across regulators, potentially cross-border, and with financial service providers and users.
  - Periodically review financial regulations from both development and stability perspectives.
- Constraints and tradeoffs highlighted:
  - Consistency across reforms is often lacking; tensions exist (e.g., between LCR and bail-in requirements) and coordination gaps occur among resolution authorities, banking supervisors, accountants, and securities regulators.
  - Timing matters:
    - Some fixes (e.g., higher capital ratios) may hinder economic recovery by inducing deleveraging.
    - Other recovery-supporting measures (e.g., temporarily lower risk weights on SME loans) may underprice risk and encourage excessive risk-taking.
    - Reforms that are too slow allow risks to build; reforms that are too fast impede recovery — a “just right” approach requires judgment and flexibility.
  - Migration and global consistency:
    - Migration and fragmentation pressures can lead regulators to favor national jurisdictions, risking a race to the bottom.
    - Minimum standards aim to prevent lower standards but require active enforcement across jurisdictions.
    - Some countries may go beyond agreed standards, potentially segmenting parts of their system and raising tradeoff questions between openness and protection.
  - Cost-benefit analysis:
    - Regulators/supervisors often consider cost-benefit analysis narrowly, focused on intermediation costs while recoveries remain weak.
    - Policy-makers should think long-term across the business cycle, adjusting implementation time frames but not final goals.

### Box 1 (A–D): Overall approaches to determine specific reforms
A. Adopting a system-wide view — macroprudential priorities and tools
- Macroprudential approach dimensions:
  - better identifying risks;
  - building institutional infrastructures (like more use of CCPs);
  - adopting system-oriented policies to reduce excessive procyclicality and risks;
  - designing institutional framework for operating them.
- Basel III assessment:
  - largely micro-prudential: targets quantity and quality of bank capital but only partially addresses systemic risk of multiple simultaneous bank distress.
  - Liquidity measures: LCR not described here as firmly countering systemic liquidity risk ex ante; NSFR determinants not yet finalized.
- Macroprudential tools noted:
  - Countercyclical capital buffer (included in Basel III).
  - Systemically important capital surcharge (for TBTF institutions).
  - Loan-to-value adjustments, levies or taxes to reduce wholesale funding incentives or offset TBTF subsidy.
- Evidence and calibration:
  - Countercyclical buffers used in Spain with evidence suggesting some effectiveness (e.g., Saurina, 2009; Jiménez, et al., 2012), but did not stop a banking crisis.
  - Calibration of surcharges and tools mostly based on rough estimates; effectiveness yet to be fully determined.
- Complementary tools: banking system stress tests viewed as macroprudential-type tools.
- Shadow banking and OTC derivatives priorities preserved from source:
  - Shadow banking: identify systemic activities; debate indirect vs direct regulation; data limitations hamper progress.
  - FSB work streams on shadow banking include examining bank-shadow connections, MMMFs, identification/monitoring, securitization rules, and repo/securities lending markets.
  - OTC derivatives: reforms have benefits per MAG study; reporting and trade repositories progress better than other implementation areas.

B. Improving incentives — capital, liquidity, TBTF, and governance
- Capital and liquidity:
  - Basel III core; minimum leverage ratio agreed.
  - Limited guidance in analytical literature on exact incentive effects; higher requirements can have perverse effects in some analyses.
  - Benefits of higher capital: absorbs losses, eases interventions, protects debtholders and depositors, helps define shortfalls for timely intervention.
  - Liquidity requirements: system-level liquidity concept complex; an insurance-type charge or levy might be more appropriate than a fixed “buffer”-type surcharge.
- Industry objections and transition costs:
  - Many banks hold buffers above requirements.
  - Empirical analyses find small costs of reasonably higher requirements.
  - Transition cost estimates:
    - MAG (2010) estimate: a 1 percentage point increase in target ratio of tangible common equity (TCE) to risk-weighted assets leads to a reduction in annual GDP growth rate of 0.04 percentage points over a four and a half years period.
    - BCBS analysis: a one percentage point increase in capital ratio estimated to translate into a median 0.09 percent decline in the level of output at the end of an eight year period; impact of meeting liquidity requirement estimated at 0.08 percent.
- Limiting TBTF:
  - Implicit safety net subsidy estimated: up to 100 basis points, or up to $10 billion per banking group (average balance sheet for a SIFI about $1 trillion).
  - Measures: higher capital/liquidity, identification of G-SIBs and D-SIBs, resolution frameworks, bail-in debt minimums, contingent capital, living wills, rapid resolution plans.
- Regulatory governance remedies:
  - Funding independence, objective assessments, greater supervisory discretion with limits, use of market signals, increased transparency and broader stakeholder representation.
  - Consider institutions modeled on Consumer Financial Protection Bureau, “Sentinel” independent evaluator, “FDA-style” ex ante approvals, or a “National Transportation Safety Board”-style investigative agency.
  - Incentive audits of regulations recommended.

C. Better data and information to reduce the unknowns
- Data needs:
  - Better financial statements and forward-looking risk analysis for institutions.
  - System-level needs: disaggregated information on costs of financial services; aggregate and bilateral exposures (including shadow banking and OTC derivatives); extent of use of new instruments; granular international capital flows and cross-border exposures.
- New indicators and analytics:
  - Market-based systemic risk measures noted: MES, CoVaR, SLR.
    - MES: Marginal Expected Shortfall.
    - CoVaR: Conditional Value at Risk.
    - SLR: Systemic Liquidity Risk.
  - Need development of indicators and tools that signal risks more timely; many developments will remain confidential to supervisory agencies but non-sensitive information can be public to enhance discipline.
  - Stress tests: further development of techniques and data; conduct more regularly.
- Use of market intelligence and novel sources:
  - Combine formal analyses with market intelligence and “soft information.”
  - Explore public-source indicators and aggregators; careful design required to avoid manipulation.
- Limits of knowledge: uncertainty about drivers and build-up of systemic risks; need modesty and continued data and analysis development.

D. Assume crises will recur — improve crisis management
- Key lessons for crisis response:
  - Absorb losses quickly across financial, corporate, household, and sovereign sectors.
  - Rapid recapitalization of banks; strong, efficient, less creditor-biased resolution and restructuring mechanisms for corporations and households; quick sovereign debt restructuring when necessary (collective action clauses).
  - Maintain capacity and flexibility (notably central bank capacity) to manage unanticipated contingencies; balance with moral hazard concerns.

### V. Conclusions: priorities and actionable lessons
- Core takeaways:
  - Much progress made, but the financial reform agenda remains incomplete; many incentives for risk buildup remain.
  - Two-dimensional view of reforms: degree of knowledge (knowns to unknowns) vs practicality/actionability (actionable to unactionable).
    - Example placements from source: Basel III in “knowns” and “actionable”; shadow banking intermediate; fast-moving markets/high-frequency trading in lower quadrant (poorly understood and not yet actionable).
  - Need to connect systemic risk measures to mitigation tools so marginal contribution to systemic risk can be priced (levies) and internalized.
  - Data, analysis, and institutional capacity are preconditions for actionable policy.
- Three basic lessons (policy priorities):
  - Think system-wide in risk monitoring and reforms: supervision geared to oversee the financial system in its entirety; adopt macroprudential and other policies that explicitly address market failures and externalities.
  - Incentives matter: regulations must better align incentives with goals; when information on effectiveness is lacking, regulators should adopt a “do not harm” oath—use basic principles and simple measures.
  - Expect risks and uncertainty: maintain “plan B” crisis management plans that are integral to financial system design rather than improvisations.

*Source — _wp1446 (excerpts) — PDF chapter/section*

### References .............................................................................................................

### _wp1446 - References

### Introduction: purpose and framing
- Objective: reduce the chance and costs of future systemic financial crises at the lowest costs to economic growth and welfare more generally.
- Core challenge: policy makers need to think more about the system as a whole when monitoring risks and designing reforms; many current frameworks remain silo-based and miss system-wide, endogenous risks.
- Needed approach: holistic reforms that examine interactions between and across institutions, markets, participants, jurisdictions, and across types of risks (market, credit, liquidity, operational).
- Implementation constraints emphasized: lack of specific analytical frameworks, limited appropriate data, and limited practical implementation/enforcement mechanisms.
- Suggested policymaking stance: adopt a more “Bayesian” approach—implement reforms where knowledge is greater; take an “experimental” approach and invest in data/analysis where knowledge is limited.
- Acceptance of limits: recognition that institutional, political, and other constraints will affect final reform choices and enforcement; therefore enhance crisis management, resolution, and transparent burden sharing.

### Causes of the global financial crisis — synthesis
- Overall characterization: the crisis had multiple, interlinked causes; causes can be grouped into four "common" and four "new" causes.
- Common causes:
  - Credit booms / rapid financial expansion associated with deterioration in lending standards and high leverage; credit booms increase crisis likelihood (cite Dell’Ariccia, et al., 2012).
  - Rapid asset price appreciation (notably housing); example: "House prices in the United States rose more than 30 percent from 2003 to the onset of the crisis."
  - Creation and rapid growth of structured credit products (e.g., CDOs) with payoffs dependent on other assets; risks often not fully comprehended or were downplayed by institutional players such as rating agencies.
  - Financial liberalization and deregulation (e.g., removal of barriers between commercial and investment banking, reliance on internal risk models) without commensurate supervisory capacity; regulatory/supervisory lag and political capture allowed risks—especially in the shadow banking system—to grow with little oversight.
- New causes:
  - Sharp rise in household leverage and widespread household defaults on housing loans; restoring household balance sheets will take a long time and extend recovery periods.
  - Increased leverage across a wide range of agents and markets, reliance on finely priced, illiquid collateral leading to rapid collateral value declines; fear of counterparty defaults, high interconnected leverage, short funding liquidity and off-balance sheet exposures contributed to frozen market transactions and valuation problems.
  - Increased complexity and opacity driven by private-label securitization of weak credits, explosive growth in derivatives, and shadow banking operations; risks were less widely distributed than expected and securitized-product complexity hindered valuation and risk identification.
  - Dramatic increase in international financial integration leading to rapid global transmission of turmoil; cross-border links complicated coordinated policy responses and may reflect "too much finance"—growth in size and complexity that added risks without proportional value.
- Additional notes: other suggested contributors include too-loose monetary policy and fiscal weaknesses (e.g., generous tax deduction of interest), but their roles relative to other causes remain unclear.

### Regulatory responses to date: progress and tools
- Institutional evolution: informal Basel group of regulators and central bank experts formalized through establishment of the Financial Stability Board (FSB) in April 2009; FSB coordinates national financial authorities and standard-setting bodies, primarily among G-20 countries.
- Noted documentation: assessment draws on the FSB progress report to the G-20, September 5, 2013.
- Key reforms under FSB guidance (summarized in source):
  - Adoption of Basel III capital requirements, including a countercyclical capital buffer and a surcharge for globally systemically important financial institutions (G-SIFIs), characterized as a first international attempt to institute a macroprudential tool.
  - Direct textual excerpt on Basel III rules appears in the source as: "The rules (see Basle Committee on Banking Supervision, BCBS, 2011) are: a 4.5 percent basic and a" (fragment preserved exactly as in source).
- Implementation caveats:
  - Progress is uneven across reform areas.
  - Rigorous theoretical analyses and empirical evidence on the impact of new regulations on reducing crisis risk remain in short supply.
  - Designing reforms requires explicit accounting for analytical, practical, and data constraints, and acknowledgment of "known unknowns" and "unknown unknowns."
  - Given inability to prevent all future crises, strengthening crisis management and resolution is integral to the reform agenda.

### Policy implications and recommended emphases
- Prioritize system-wide (macroprudential) perspectives when designing regulation and supervision to capture endogenous systemic risk.
- Anticipate and evaluate cross-effects and side effects of regulations within and across jurisdictions.
- Improve incentives across all actors: market participants, monitors, and supervisory agencies.
- Enhance data collection and analytical capabilities to reduce unknowns and support evidence-based reforms.
- Apply a staged reform strategy: implement where evidence is stronger; pursue experimental pilots and invest in data/analysis where evidence is weaker.
- Strengthen crisis management, resolution frameworks, and transparent burden-sharing mechanisms domestically and internationally.

*Italicized: Source — _wp1446 - References (excerpts) — PDF chapter/section*

### 2.5 percent conservation buffer requirement for all banks; a 2.5 percent countercyclical buffer in the boom

### _wp1446 - 2.5 percent conservation buffer requirement for all banks; a 2.5 percent countercyclical buffer in the boom

### Reforms achieved and remaining elements
- Adoption of a 2.5 percent conservation buffer requirement for all banks; a 2.5 percent countercyclical buffer in the boom phase of the financial cycle; and for some banks (designated as systemic), an up to 2.5 percent systemic surcharge.
- Altogether, the highest minimum requirement in the form of common equity (Tier 1) would be 12 percent.
- Additional capital components:
  - 1.5 percent alternative Tier 1 equity.
  - 2 percent Tier 2 (hybrid) forms of capital.
- Ratios apply to risk-weighted assets; a simple leverage requirement (ratio of (common) equity to total assets) has also been adopted.
- Basel III requires better forms of capital, especially more core equity, rather than hybrid forms used before the crisis.
- Agreement reached on the Liquidity Coverage Ratio (LCR): banks must have assets and access to facilities to cover 30 days of outflows.
- Net Stable Funding Ratio (NSFR) remains under discussion.
- Some progress on reducing too-big-to-fail: identification of G-SIFIs and D-SIBs, higher capital adequacy requirements, more intense supervision, and some reforms of national resolution schemes (including bail-in instruments).
- Enhancements to the “securitization model”:
  - Credit rating agencies asked to disclose more.
  - Formal rules requiring retention of underlying assets instituted in various jurisdictions.
  - Accounting information on off-balance sheet vehicles (e.g., Special Investment Vehicles (SIVs) and conduits) must be consolidated.
- Adoption of principles for sound compensation practices to avoid perverse incentives for risk-taking.
- Agreement in principle on similar treatment of some financial transactions under U.S. GAAP and IFRS.
- Some closure of data gaps, including harmonized collection of improved consolidated data on bilateral counterparty and credit risks for major systemic banks: coverage for the major 18 G-SIBs and 6 other non-G-SIBs from 10 jurisdictions.
- Some OTC derivatives reforms: requirements for reporting and centralized clearing of some types of OTC derivatives in some jurisdictions; guidelines and minimum standards for centralized counterparties (CCPs) by CPSS-IOSCO.

### Analytical framing: system-wide perspective and market failures
- Core analytical approach summarized under three themes:
  - Think system-wide and explicitly address market failures and externalities.
  - Improve incentives, individually and collectively, of all those involved in finance.
  - Collect more, higher quality data and conduct better analyses.
- System-wide perspective necessities:
  - Regular public financial stability reviews, large scale stress tests, and integrated supervisory consideration of systemic consequences.
  - Recognition that micro-prudential regulation alone does not assure a safe financial system; fallacies of composition and interconnectedness can produce systemic risks.
  - Example: microprudential liquidity insurance arrangements across banks can leave aggregate liquidity risk intact.
  - A system-wide toolkit, some elements of which must be global, and institutions to assure risk monitoring and remedial actions.

### Improve incentives: targets and challenges
- Incentives framework should target:
  - Direct market participants: owners, creditors (including deposit insurance agencies), managers, staff, market participants, and end-users.
  - Auxiliary monitors: rating agencies, accounting and auditing firms, clearing houses, CCPs, the financial press, and whistleblowers.
  - Regulators and supervisors: address capture, lack of ex post cost for failures, and limited reward for early risk detection.
- Observations:
  - Rating agencies contributed to the crisis; reforms aim to remedy incentive conflicts.
  - Auxiliary monitors can exercise market discipline but their incentives determine effectiveness.
  - Enhancing national and international regulatory governance and accountability is necessary to anchor incentive-based approaches.

### Realize risks, known and unknown, will remain
- Key points:
  - Some risks will remain acceptable; a fully fail-proof financial system may not be efficient.
  - Optimizing welfare in the presence of full information about risks involves tradeoffs between efficiency and stability.
  - Insuring against some risks explicitly may be inefficient and increase moral hazard.
  - More resources, analyses, and data can reduce unknown unacceptable risks but cannot eliminate all risks.
  - Some risks are not easily recognizable or may be unknown even to purveyors; new sources and unforeseen interactions can generate systemic events, including “Black Swans.”
  - Contingency planning and flexibility in crisis response remain essential.

### Adapt approaches and avoid common fallacies
- Process recommendations:
  - Adopt frameworks for regular consultation and coordination across regulators, potentially cross-border, and with financial service providers and users.
  - Periodically review financial regulations from both development and stability perspectives.
- Constraints and tradeoffs highlighted in Box 1:
  - Overall consistency across reforms is often lacking; tensions exist (e.g., between LCR and bail-in requirements) and coordination gaps occur among resolution authorities, banking supervisors, accountants, and securities regulators.
  - Timing of reforms and implementation matters:
    - Some fixes (e.g., higher capital ratios) may hinder economic recovery by inducing deleveraging.
    - Other measures to support recovery (e.g., temporarily lower risk weights on SME loans) may underprice risk and encourage excessive risk-taking.
    - Reforms that are too slow allow risks to build; reforms that are too fast impede recovery — a “just right” approach requires judgment and flexibility.
  - Migration and global consistency:
    - Migration and fragmentation pressures can lead regulators to favor national jurisdictions, risking a race to the bottom.
    - Minimum standards aim to prevent lower standards but require active enforcement across jurisdictions.
    - Some countries may aim to be “super safe,” going beyond agreed standards and potentially segmenting parts of their system, raising questions about the tradeoffs between openness and protection.
  - Cost-benefit analysis:
    - Regulators/supervisors consider cost-benefit analysis often narrowly, focused on intermediation costs while recoveries remain weak.
    - Policy-makers should think long-term across the business cycle, adjusting implementation time frames but not final goals.

*Source: IMF working paper excerpt as provided.*

### Box 1. Overall Approaches to Determine Specific Reforms (continued)

### Box 1. Overall Approaches to Determine Specific Reforms (continued)

### A. Adopting a system-wide view
- Macroprudential policies
  - Macroprudential approach dimensions: better identifying risks; building institutional infrastructures (like more use of CCPs); adopting system-oriented policies to reduce excessive procyclicality and risks; designing institutional framework for operating them.
  - Basel III is largely micro-prudential: targets quantity and quality of bank capital but only partially addresses systemic risk of multiple simultaneous bank distress.
  - Liquidity measures in Basel III:
    - Liquidity Coverage Ratio (LCR) — not described here as firmly countering systemic liquidity risk ex ante.
    - Net Stable Funding Ratio (NSFR) — determinants not yet finalized; various parts look watered down.
  - Macroprudential tools noted:
    - Countercyclical capital buffer (included in Basel III).
    - Systemically important capital surcharge (for TBTF institutions).
    - Loan-to-value adjustments, levies or taxes to reduce wholesale funding incentives or offset TBTF subsidy.
  - Evidence and calibration:
    - Countercyclical buffers used in Spain with evidence suggesting some effectiveness (e.g., Saurina, 2009; Jiménez, et al., 2012), but did not stop a banking crisis.
    - Calibration of surcharges and tools mostly based on rough estimates; effectiveness yet to be fully determined.
  - Governance and interactions:
    - Regulatory governance (who is in charge, cross-border aspects) and interactions with microprudential, monetary, and fiscal policies are critical.
  - Complementary tools: banking system stress tests viewed as macroprudential-type tools.

- Procyclicality
  - Sources: compensation practices, VaR and credit risk modeling, margining and collateral practices, accounting and valuation practices, capital and liquidity requirements, risk-weights, provisioning rules, deposit insurance schemes, behavioral investor tendencies.
  - Compensation reforms:
    - Move from return-only bonuses to risk-adjusted profit allocation; better to pay “through the cycle” with portions deferred (some institutions: 3-year horizon; options on stock price; “high water” marks).
    - Firms reluctant to risk-adjust bonuses due to model uncertainty and fear of losing talent to non-risk-adjusting firms; mandatory coordinated compensation schemes suggested.
  - Risk models and VaR:
    - Short historical calibration (e.g., 1-year) encourages procyclical trading; stressed VaR in Basel 2.5 may mitigate some procyclicality.
  - Accounting and fair-value accounting (FVA) contribute to procyclicality; through-the-cycle provisioning encouraged but accounting progress incomplete (IASB discussing “expected loss” concept).
  - Regulatory history:
    - Basel II criticized as procyclical; Basel III adds countercyclical capital buffer and encourages provisioning against future loans.

- Shadow banking
  - FSB definition: “credit intermediation involving entities and activities (fully or partially) outside the regular banking system.”
  - Shadow banking features: maturity/liquidity transformation, leverage, credit risk transfer.
  - Policy challenges:
    - Determine which shadow banking activities are systemic and require regulation.
    - Debate between indirect regulation (limits on banks’ exposures to shadow banking) vs direct regulation of shadow activities.
  - FSB five work streams (high-level):
    - Examine connections between regulated banks and shadow banks; proposals to restrict large exposures and equity investments in shadow banks.
    - Money Market Mutual Funds (MMMFs): IOSCO tasked to develop guidelines; U.S. shortened allowable asset maturities; unresolved questions on constant NAV, liquidity buffers, or capital-type regulations.
    - Identification and monitoring of nonbank financial institutions acting like shadow banks; emphasis on functions over legal form, but data limitations hamper progress.
    - Securitization: patchwork retention rules, increased disclosure and capital-based risk-weights have made issuance more costly; unclear if moribund market is due to reputation, weak demand, or over-regulation.
    - Repo and securities lending markets: some tri-party repo risks subdued; no agreement on minimum haircuts; quantitative impact study underway (does not include haircuts on government securities).
  - FSB recommendations for repo/securities financing:
    - (1) more granular exposure data from largest international financial institutions;
    - (2) trade-level (flow) data of outstanding balances in repo markets;
    - (3) aggregate and compare trends in securities financing markets at global level.
  - Data gaps: New York Fed collateral data still too coarse.

- OTC derivatives markets
  - Global transmission of risk; lack of transparency problematic in volatile times.
  - Uneven progress across jurisdictions; risk of migration of trading to less regulated jurisdictions.
  - MAG study finding: benefits of currently formulated reforms outweigh costs by about 0.12 percentage points more GDP growth per year over the long run when reforms fully implemented and effects realized.
  - Implementation challenges:
    - Calibrating bilateral collateral requirements, capital charges for non-collateralized trades, collateral held in CCPs.
    - Trade repositories progress better for reporting; data access and interconnectivity remain constrained by usage restrictions.

### B. Improving incentives
- Banking system reforms and capital/liquidity requirements
  - Basel III core; minimum leverage ratio agreed.
  - Analytical literature: limited guidance on exact incentive effects of capital requirements; some analyses find higher requirements can have perverse effects (Genotte and Pyle, 1991).
  - Benefits of higher capital:
    - Absorbs losses, eases interventions, protects debtholders and depositors, helps define shortfalls for timely intervention.
  - Liquidity requirements:
    - System-level liquidity concept complex and not well defined; design of liquidity rules less advanced than capital regulation.
    - Suggests an insurance-type charge or levy might be more appropriate than a fixed “buffer”-type surcharge.
  - Industry objections: increased intermediation costs and adverse impact on real economy; counter-evidence:
    - Many banks already hold buffers above requirements.
    - Analyses find small costs of reasonably higher requirements (Santos and Elliott, 2012; BCBS, 2010).
    - Case: Switzerland raised capital well beyond minimums for two systemically important banks.
  - Transition costs:
    - MAG (2010) estimate: a 1 percentage point increase in target ratio of tangible common equity (TCE) to risk-weighted assets leads to a reduction in annual GDP growth rate of 0.04 percentage points over a four and a half years period.
    - BCBS analysis: a one percentage point increase in capital ratio estimated to translate into a median 0.09 percent decline in the level of output at the end of an eight year period; impact of meeting liquidity requirement estimated at 0.08 percent.

- Limiting “too-big-to-fail” (TBTF)
  - Implicit safety net subsidy estimated: up to 100 basis points, or up to $10 billion per banking group (average balance sheet for a SIFI about $1 trillion) (Ueda with di Mauro, 2012).
  - Measures:
    - Higher capital and liquidity regulations are likely to bind on institutions that benefited from size.
    - Identification of G-SIBs and D-SIBs; many jurisdictions yet to implement final rules for D-SIBs.
    - Systemically important non-banks (e.g., insurance) identification only starting.
    - Resolution frameworks, bail-in debt minimums, asset encumbrance constraints, depositor preference issues unresolved.
    - Tools: contingent capital (CoCo), living wills, rapid resolution plans.

- Regulatory governance and incentives for regulators
  - Problems: insufficient legal, financial, and operational independence; minimal public oversight and consequences for poor performance.
  - Remedies:
    - Funding independence to secure intellectual and operational independence.
    - Objective assessments and regular checks (e.g., ROSCs, peer reviews).
    - Greater discretion for supervisors coupled with limits or formal triggers (e.g., FDICIA prompt corrective action).
    - Use market signals (stock price declines, repriced junior debt interest increases) as disciplining devices.
    - Increase transparency in design of rules and public participation; broaden stakeholder representation (including households and end-users).
    - Consider institutions modeled on:
      - Consumer Financial Protection Bureau (U.S.) as counterforce for public interest.
      - “Sentinel” independent evaluator of regulations (Barth, Caprio, Levine, 2012).
      - “FDA-style” ex ante approvals for new financial instruments or a “National Transportation Safety Board”-style investigative agency.
    - Incentive audits of regulations (Čihák, Demirgüç-Kunt, Johnston, 2013).

- International coordination and burden sharing
  - Supervisory colleges set up for G-SIBs; some information sharing but insufficient.
  - Cross-border burden sharing of governmental support and allocation of assets in resolution/liquidation unresolved.
  - FSB promotes coordination but decision-making by consensus and lacks enforcement beyond peer pressure.
  - Consideration of a body with global jurisdiction and authority has been discussed but not developed.

### C. Better data and information to reduce the unknowns
- Data needs
  - Better financial statements and forward-looking risk analysis for institutions; embed improved disclosures into decision-making processes.
  - System-level needs: disaggregated information on costs of financial services; aggregate and bilateral exposures (including shadow banking and OTC derivatives); extent of use of new instruments; granular international capital flows and cross-border exposures.
  - Reference works: Kodres (2013); G-20 Data Gaps Initiative progress (Heath, 2013).

- New indicators and analytics
  - Market-based systemic risk measures: MES, CoVaR, SLR noted as promising.
    - MES: Marginal Expected Shortfall (Acharya et al., 2010).
    - CoVaR: Conditional Value at Risk (Adrian and Brunnermeier, 2011).
    - SLR: Systemic Liquidity Risk (Severo, 2012).
  - Need for development of indicators and tools that signal risks more timely; many developments will remain confidential to supervisory agencies but non-sensitive information can be public to enhance discipline.
  - Stress tests: further development of techniques and data; conduct more regularly.

- Use of market intelligence and novel information sources
  - Combine formal analyses with market intelligence and “soft information” from market participants and end users.
  - Explore public-source indicators and aggregators (including nontraditional signals); many attempts suffer from analytical failings and in-sample biases.
  - Potential to develop new markets or indicators to reveal systemic risks (e.g., Iowa Electronic Markets: www.tippie.uiowa.edu/iem); careful design needed to avoid manipulation.

- Limits of knowledge
  - Uncertainty remains about drivers and build-up of systemic risks, interactions across risks, and exact effects of incentive-based tools.
  - Need for modesty and continued development of data and analysis; confidentiality and incentives can hamper information sharing.

### D. Assume crises will recur, improve crisis management
- Key lessons for crisis response
  - Need to absorb losses quickly across financial, corporate, household, and sovereign sectors.
  - Rapid recapitalization of banks; strong, efficient, less creditor-biased resolution and restructuring mechanisms for corporations and households; quick sovereign debt restructuring when necessary (collective action clauses).
  - Maintain capacity and flexibility (notably central bank capacity) to manage unanticipated contingencies; balance with moral hazard concerns.

### V. Conclusions: What do we have to do in order to do better?
- Core takeaways
  - Much progress made, but financial reform agenda still incomplete; many incentives for risk buildup remain.
  - Two-dimensional view of reforms: degree of knowledge (knowns to unknowns) vs practicality/actionability (actionable to unactionable).
    - Example: Basel III resides in “knowns” and “actionable.”
    - Shadow banking occupies intermediate positions: some knowledge but incomplete data and models.
    - Lower quadrant issues: fast-moving markets, high-frequency trading, and potential tipping points—poorly understood and not yet actionable.
  - Need to connect systemic risk measures to mitigation tools so marginal contribution to systemic risk can be priced (levies) and internalized.
  - Data, analysis, and institutional capacity are preconditions for actionable policy.

- Three basic lessons (policy priorities)
  - Think system-wide in risk monitoring and reforms: supervision geared to oversee the financial system in its entirety; adopt macroprudential and other policies that explicitly address market failures and externalities.
  - Incentives matter: regulations must better align incentives with goals; when information on effectiveness is lacking, regulators should adopt a “do not harm” oath—use basic principles and simple measures.
  - Expect risks and uncertainty: maintain “plan B” crisis management plans that are integral to financial system design rather than improvisations.

*Source: Box 1. Overall Approaches to Determine Specific Reforms (continued), IMF working paper text.*

### REFERENCES

### _wp1446 - REFERENCES

### Systemic risk measurement, liquidity, and leverage
- Acharya, Viral, Christian Brownlees, Robert Engle, Farhang Farazmand and Mathew Richardson, 2010, “Measuring Systemic Risk” in Acharya, Viral, Thomas Cooley, and Mathew Richardson (Eds.), Regulating Wall Street: The Dodd-Frank Act and the New Architecture of Global Finance, John Wiley and Sons.
- Adrian, Tobias, and Markus K. Brunnermeier, 2011, “CoVaR,” NBER Working Paper 17454.
- Adrian, Tobias and Hyun S. Shin, 2010, “Liquidity and Leverage,” Journal of Financial Intermediation 19(3), pp. 418-437.
- Blancher, Nicolas, Srobona Mitra, Hanan Morsy, Akira Otani, Tiago Severo, and Laura Valderrama, 2013, “SysMo - A Practical Approach to Systemic Risk Monitoring,” IMF Working Paper 13/168 (Washington: International Monetary Fund).
- Brunnermeier, Marcus, Arvind Krishnamurthy, and Gary Gorton, 2013, “Liquidity Mismatch Measurement,” in Risk Topography: Systemic Risk and Macro Modeling, ed. by M.K. Brunnermeier and A. Krishnamurthy (Chicago, Illinois: NBER/University of Chicago Press).
- Severo, Tiago, 2012, “Measuring Systemic Liquidity Risk and the Cost of Liquidity Insurance,” IMF Working Paper 12/194 (Washington: International Monetary Fund).
- Brunnermeier, Marcus, Andrew Crockett, Charles Goodhart, Avinash D. Persaud, and Hyun Shin, 2009, “The Fundamental Principles of Financial Regulation,” The International Center for Money and Banking Studies, Geneva, Switzerland.

### Macroprudential policy, capital, and regulation
- Agur, Itai and Sunil Sharma, 2013, “Rules, Discretion, and Macroprudential Policy,” IMF Working Paper, 13/65 (Washington: International Monetary Fund).
- Claessens, Stijn, Swati Ghosh and Roxana Mihet, 2013, “Macro-Prudential Policies to Mitigate Financial System Vulnerabilities,” Journal of International Money and Finance, Vol. 39, pp. 153-185.
- Claessens, Stijn, Douglas D. Evanoff, George G. Kaufman, and Laura Kodres, 2011, Macro-prudential regulatory policies: The New Road to Financial Stability. (Eds.), World Scientific Studies in International Economics, Pte. Ltd, New Jersey.
- Dell’Ariccia, Giovanni, Deniz Igan, Luc Laeven, Hui Tong (with Bas Bakker and Jerome Vandenbussche), 2012, Policies for Macrofinancial Stability: How to Deal with Credit Booms, IMF Staff Discussion Note 12/05 (Washington: International Monetary Fund).
- De Nicolò, Gianni, Giovanni Favara, and Lev Ratnovski, 2012, “Externalities and Macroprudential Policy,” IMF Staff Discussion Note 12/05 (Washington: International Monetary Fund).
- Lim, Cheng-Hoon, F. Columba, A. Costa, P. Kongsamut, A. Otani, M. Saiyid, T. Wezel, and X. Wu, 2011, “Macroprudential Policy: What Instruments and How to Use Them, Lessons from Country Experiences,” IMF Working Paper 11/238 (Washington: International Monetary Fund).
- Jiménez, Gabriel, Steven Ongena, José Luis Peydró and Jesús Saurina, 2012, “Macroprudential Policy, Countercyclical Bank Capital Buffers and Credit Supply: Evidence from the Spanish Dynamic Provisioning Experiments,” Barcelona GSE Working Paper No. 628.
- International Monetary Fund, 2011, “Towards Operationalizing Macroprudential Policies: When to Act?” Chapter 3 in Global Financial Stability Report (Washington: International Monetary Fund).
- International Monetary Fund, 2012a, “Macrofinancial Stress Testing—Principles and Practices” (Washington: International Monetary Fund).
- International Monetary Fund, 2013a, “Key Aspects of Macroprudential Policy,” Board paper  (Washington: International Monetary Fund).
- International Monetary Fund, 2013b, “Key Aspects of Macroprudential Policy – Background Paper” (Washington: International Monetary Fund).
- Nier, Erlend W., Jacek Osiński, Luis I. Jácome, and Pamela Madrid, 2011, “Institutional Models for Macroprudential Policy,” IMF Staff Discussion Note 11/18 and Working Paper 11/250 (Washington: International Monetary Fund).
- Osiński, Jacek, Katharine Seal, and Lex Hoogduin, 2013, “Macroprudential and Microprudential Policies: Towards Cohabitation,” IMF Staff Discussion Note 13/05 (Washington: International Monetary Fund).
- Claessens Stijn, and M. Ayhan Kose 2014, “Financial Crises: Explanations, Types, and Implications,” in Stijn Claessens, M. Ayhan Kose, Luc Laeven, and Fabián Valencia (Eds.), Financial Crises: Causes, Consequences, and Policy Responses, IMF, Washington, D.C. (also IMF Working Paper, 13/28).

### Capital, liquidity standards, and macroeconomic impact assessments
- BCBS [Basel Committee on Banking Supervision], 2010. An assessment of the long-term economic impact of stronger capital and liquidity requirements, at http://www.bis.org/publ/bcbs173.pdf
- BCBS [Basel Committee on Banking Supervision], 2011. Basel III: A global regulatory framework for more resilient banking systems, (Dec 2010, revised June 2011), at http://www.bis.org/publ/bcbs189.pdf
- BCBS [Basel Committee on Banking Supervision], 2013. Regulatory consistency assessment programme (RCAP) - Analysis of risk-weighted assets for market risk, at http://www.bis.org/publ/bcbs240.htm
- Macroeconomic Assessment Group (MAG, formed by Basel Committee on Banking Supervision and the Financial Stability Board), 2010. “Assessing the macroeconomic impact of the transition to stronger capital and liquidity requirements - Interim Report,” at http://www.bis.org/publ/othp10.htm.
- MAG on Derivatives, 2013, “Macroeconomic Impact Assessment of OTC Derivatives Regulatory Reforms,” August, (Basel: Bank of International Settlements), at http://www.bis.org/publ/othp20.htm.
- Santos, André Oliveira, and Douglas Elliott, 2012, “Estimating the Costs of Financial Regulation,” Staff Discussion Note12/11, (Washington: International Monetary Fund).

### Shadow banking, securitization, and credit ratings
- Claessens, Stijn, Douglas D. Evanoff, George G. Kaufman, and Luc Laeven, 2014, Shadow Banking Within and Across National Borders. (Eds.), World Scientific Studies in International Economics, Pte. Ltd, New Jersey.
- Claessens, Stijn and Lev Ratnovski, 2013, “What is Shadow Banking?” At VOXEU.org and in Claessens, Evanoff, Kaufman, and Laeven (2014).
- International Monetary Fund, 2009, “Restarting Securitization Markets: Policy Proposals and Pitfalls,” Chapter 2 in the Global Financial Stability Report (Washington: International Monetary Fund).
- Kiff, John and Michael Kisser, 2010, “Asset Securitization and Optimal Retention,” IMF Working Paper 10/74 (Washington: International Monetary Fund).
- Kiff, John, Michael Kisser, and Liliana Schumacher, 2013, “The Effects of Through-the-cycle Rating Methodology,” IMF Working Paper 13/64 (Washington: International Monetary Fund).
- Partnoy, Frank, 2010, “Overdependence on Credit Ratings Was a Primary Cause of the Crisis,” in The Panic Of 2008: Causes, Consequences, and Implications for Reform, Lawrence Mitchell and Arthur Wilmarth (eds.). Edward Elgar Press.
- International Monetary Fund, 2010, “The Uses and Abuses of Sovereign Credit Ratings,” Chapter 2 in the Global Financial Stability Report (Washington: International Monetary Fund).

### Financial crises, history, and systemic perspectives
- Allen, F., and D. Gale, 2007, Understanding Financial Crises, Clarendon Lectures in Finance (Oxford, UK: Oxford University Press).
- Calomiris, Charles W., 2009, “The Subprime Turmoil: What’s Old, What’s New, and What’s Next,” Journal of Structured Finance, Vol. 15, No. 1, pp. 6-52.
- Eichengreen, Barry, 2002, Financial Crises: And What to Do about Them (Oxford, UK: Oxford University Press).
- Eichengreen, Barry, 2010. “From Great Depression to Great Credit Crisis: Similarities, Differences and Lessons,” Economic Policy, 62.
- Geanakoplos, John, 2010. “The Leverage Cycle” in D. Acemoglu, K. Rogoff and M. Woodford, eds., NBER Macroeconomic Annual 2009, vol. 24:  pp.1-65, University of Chicago Press.
- Kindleberger, Charles, 1978, Manias, Panics, and Crashes: A History of Financial Crises, New York: Basic Books, revised and enlarged, 1989, 3rd ed. 1996.
- Kiyotaki, Nobuhiro and John Moore, 1997, “Credit Cycles,” Journal of Political Economy, 105: pp. 211-248.
- Rajan, Raghuram, 2010, Fault Lines, (Cambridge: The MIT Press).
- Reinhart, Carmen and Kenneth Rogoff, 2009, This Time is Different: Eight Centuries of Financial Folly (Princeton, New Jersey: Princeton University Press).
- Reinhart, Carmen and Kenneth Rogoff, ———, 2013, “Banking Crises: an Equal Opportunity Menace,” Journal of Banking and Finance, Vol. 37(11), pp. 4557-4573.

### Governance, supervision, disclosure, and incentives
- Ayres, Ian, and John Braithwaite, 1995, Responsive Regulation: Transcending the Deregulation Debate, Oxford Socio-Legal Studies.
- Barth, James, Gerard Caprio, and Ross Levine, 2012, Guardians of Finance. MIT Press, Cambridge, MA.
- Dyck, Alexander, Adair Morse and Luigi Zingales, 2010, "Who Blows the Whistle on Corporate Fraud," Journal of Finance, Vol. 65, pp. 2213-2253.
- Fielding, Eric, Andrew W. Lo, and Jian Helen Yang, 2011, The National Transportation Safety Board: A Model For Systemic Risk Management, Journal of Investment Management, Vol. 9, No. 1, pp. 17-49.
- Fullenkamp, Connel and Sunil Sharma, 2012, “Good Financial Regulation: Changing the Process is Crucial,” International Centre for Financial Regulation/Financial Times Essay, February 7, 2012.
- Weil, David, Archon Fung, Mary Graham, and Elena Fagotta, 2006, “The Effectiveness of Regulatory Disclosure Policies,” Journal of Policy Analysis and Management, Vol. 25, No. 1, pp. 155-81.
- Čihák, Martin, Aslı Demirgüç-Kunt and R. Barry Johnston, 2013, “Incentive Audits: A New Approach to Financial Regulation,” World Bank Policy Research Working Paper 6308, (Washington: World Bank).
- Čihák, Martin, Sònia Muñoz, Shakira Teh Sharifuddin, and Kalin Tintchev, 2012, “Financial Stability Reports: What Are They Good For?” IMF Working Paper 12/1 (Washington: International Monetary Fund).
- Viňals, José, Jonathan Fiechter, Ceyla Pazarbasioglu, Laura Kodres, Aditya Narain, and Marina Moretti, 2010, “Shaping the New Financial System,” Staff Position Note, 10/15 (Washington: International Monetary Fund).
- Ueda, Kenichi and Beatrice Weder di Mauro, 2012, “Quantifying Structural Subsidy Values for Systemically Important Financial Institutions,” IMF Working Paper 12/128 (Washington: International Monetary Fund).
- Haldane, Andres G. and Vasileios Madouros, 2012, “The Dog and the Frisbee.” Speech at the Federal Reserve Bank of Kansas City’s 36th Economic Policy Symposium,” The Changing Policy Landscapte,” Jackson Hole, Wyoming, 31 August.
- Wellink, A.H.E.M, 2009, “The Future of Supervision,” Speech given at a FSI High Level Seminar, Cape Town, South Africa, January 29, at http://www.dnb.nl/en/news/news-and-archive/speeches-2009/dnb212415.jsp

### International bodies, standards, data initiatives, and implementation progress
- FSB [Financial Stability Board], 2011, “Key Attributes of Effective Resolution Regimes for Financial Institutions,” October, at http://www.financialstabilityboard.org/publications/r_111104cc.pdf
- FSB [Financial Stability Board], 2012, “Strengthening Oversight and Regulation of Shadow Banking.” Consultative Document.
- FSB [Financial Stability Board], 2013, “Report to G20 Leaders on financial regulatory reform progress, and Overview of Progress in the Implementation of the G20 Recommendations for Strengthening Financial Stability,” September 5, 2013, at http://www.financialstabilityboard.org/index.htm
- FSB-IMF, 2013, “Fourth Progress Report on Data Gap Initiative,” Washington, D.C., September, at http://www.imf.org/external/np/g20/pdf/093013.pdf
- FSB [Financial Stability Board], 2013a, “Progress and Steps Toward Ending ‘Too-Big-To-Fail’ (TBTF),” Report to the G20, September 2, 2013, at http://www.financialstabilityboard.org/publications/r_130902.pdf
- FSB [Financial Stability Board], 2013b, “Sixth Progress Report on OTC Derivatives Reform Implementation,” September 2, 2013, at http://www.financialstabilityboard.org/publications/r_130902b.pdf
- FSF [Financial Stability Forum], 2009, “Principles for Sound Compensation Practices,” April 2, 2009, at http://www.financialstabilityboard.org/publications/r_0904b.pdf
- Committee of Payments and Settlement Systems and the Technical Committee of the International Organization of Securities Commissions, 2012, “Principles for Financial Market Infrastructures,” April, (Basel: Bank of International Settlements).
- Heath, R., 2013, “Why Are the G-20 Data Gaps Initiative and the SDDS Plus Relevant for Financial Stability Analysis?” IMF Working Paper 13/6 (Washington: International Monetary Fund).
- FSF [Financial Stability Forum], 2009, “Principles for Sound Compensation Practices,” April 2, 2009, at http://www.financialstabilityboard.org/publications/r_0904b.pdf

### Data needs, measurement, and practical tools
- Cerutti, Eugenio, Stijn Claessens, and Patrick McGuire, 2013, “Systemic Risks in Global Banking: What Available Data Can Tell Us and What More Data Are Needed?” in Risk Topography: Systemic Risk and Macro Modeling, ed. by M.K. Brunnermeier and A. Krishnamurthy (Chicago, Illinois: NBER/University of Chicago Press).
- Kodres, Laura, 2013, “Data Needed for Macroprudential Policymaking,” Chapter 14 in the Handbook of Financial Data and Risk Information, ed. Margarita S. Brose, Mark D. Flood, Dilip Krishna and Bill Nicholls, (Cambridge: Cambridge University Press).
- Blancher, Nicolas, Srobona Mitra, Hanan Morsy, Akira Otani, Tiago Severo, and Laura Valderrama, 2013, “SysMo - A Practical Approach to Systemic Risk Monitoring,” IMF Working Paper 13/168 (Washington: International Monetary Fund).
- FSB-IMF, 2013, “Fourth Progress Report on Data Gap Initiative,” Washington, D.C., September, at http://www.imf.org/external/np/g20/pdf/093013.pdf
- Heath, R., 2013, “Why Are the G-20 Data Gaps Initiative and the SDDS Plus Relevant for Financial Stability Analysis?” IMF Working Paper 13/6 (Washington: International Monetary Fund).

### Additional topics and contributions
- Atlantic Council, Thompson Reuters, and The City UK, 2013, “The Danger of Divergence: Transatlantic Financial Reform and the G-20 Agenda,” The Atlantic Council of the United States, Washington DC.
- Fielding, Eric, Andrew W. Lo, and Jian Helen Yang, 2011, The National Transportation Safety Board: A Model For Systemic Risk Management, Journal of Investment Management, Vol. 9, No. 1, pp. 17-49.
- Fostel, Ana and John Geanakoplos, 2012, “Tranching, CDS and Asset Prices: How Financial Innovation Can Cause Bubbles and Crashes,” American Economic Journal: Macroeconomics, 4(1), pp. 190-225.
- Fostel, Ana and John Geanakoplos, 2013, “Reviewing the Leverage Cycle,” Working paper, George Washington University, September, at http://home.gwu.edu/~afostel/forms/wpfostel5.pdf
- Genotte, Gerard and David H. Pyle, 1991, “Capital Controls and Bank Risk,” Journal of Banking and Finance, 15, pp. 805-824.
- Crowe, Chris W., Giovanni Dell'Ariccia, Deniz Igan, and Pau Rabanal, 2011, “How to Deal with Real Estate Booms: Lessons from Country Experiences,” IMF Working Paper, No. 11/91 (Washington: International Monetary Fund).
- Kodres, Laura, 2013, “Data Needed for Macroprudential Policymaking,” Chapter 14 in the Handbook of Financial Data and Risk Information, ed. Margarita S. Brose, Mark D. Flood, Dilip Krishna and Bill Nicholls, (Cambridge: Cambridge University Press).
- World Bank, 2013, Global Financial Development Report, Rethinking the Role of the State in Finance, (Washington: World Bank).

*Source: _wp1446 - REFERENCES*

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