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Post-crisis regulatory reform in banking: Address insolvency risk, not illiquidity!

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  • Thakor, Anjan V.

Abstract

An extensive review of the evidence related to the 2007–09 crisis reveals that it was an insolvency risk crisis, not a liquidity crisis. The appropriate post-crisis regulatory reform should therefore focus on increasing capital requirements. The Basel III liquidity requirements do not serve a useful economic purpose in dealing with the root causes of the stresses that led to the 2007–09 crisis, and unnecessarily constrain the asset transformation and liquidity creation roles of banks to the detriment of economic growth.

Suggested Citation

  • Thakor, Anjan V., 2018. "Post-crisis regulatory reform in banking: Address insolvency risk, not illiquidity!," Journal of Financial Stability, Elsevier, vol. 37(C), pages 107-111.
    • Handle: RePEc:eee:finsta:v:37:y:2018:i:c:p:107-111
    DOI: 10.1016/j.jfs.2018.03.009
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    References listed on IDEAS

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    More about this item

    Keywords

    Liquidity risk; Insolvency risk; Post-crisis regulatory reform;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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