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Regulating Systemic Institutions

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  • Jean-Charles Rochet

    (Toulouse School of Economics)

Abstract

The subprime crisis has revealed many loopholes in the supervisory/regulatory framework for banks. The most dramatic of these loopholes is certainly the Too Big To Fail (TBTF) problem: As a consequence of the way central banks and Treasuries have managed the crisis, any large financial institution that encounters financial problems in the future can expect to be bailed out by public authorities on the ground that its resolution could provoke a systemic crisis. This article proposes a solution to the TBTF problem, based on an Industrial Organization approach. Instead of simply downsizing large financial institutions or imposing stricter regulations based on newly developed measures of systemic risk exposures, I propose to reform in depth the organization of interbank and money markets.

Suggested Citation

  • Jean-Charles Rochet, 2009. "Regulating Systemic Institutions," Finnish Economic Papers, Finnish Economic Association, vol. 22(2), pages 35-46, Autumn.
    • Handle: RePEc:fep:journl:v:22:y:2009:i:2:p:35-46
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    References listed on IDEAS

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    3. Rochet, Jean-Charles & Tirole, Jean, 1996. "Interbank Lending and Systemic Risk," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(4), pages 733-762, November.
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    5. Barth, James R. & Caprio, Gerard Jr. & Levine, Ross, 2004. "Bank regulation and supervision: what works best?," Journal of Financial Intermediation, Elsevier, vol. 13(2), pages 205-248, April.
    6. Goodhart, Charles & Schoenmaker, Dirk, 1995. "Should the Functions of Monetary Policy and Banking Supervision Be Separated?," Oxford Economic Papers, Oxford University Press, vol. 47(4), pages 539-560, October.
    7. Nikola Tarashev & Claudio Borio & Kostas Tsatsaronis, 2009. "The systemic importance of financial institutions," BIS Quarterly Review, Bank for International Settlements, September.
    8. Donald P. Morgan & Kevin J. Stiroh, 2005. "Too big to fail after all these years," Staff Reports 220, Federal Reserve Bank of New York.
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    Cited by:

    1. Jorge Ponce, 2020. "Digitalization, retail payments and Central Bank Digital Currency," Financial Stability Review, Banco de España, issue Autumn.
    2. Jorge Ponce, 2020. "Digitalization, retail payments and Central Bank Digital Currency," Revista de Estabilidad Financiera, Banco de España, issue Otoño.
    3. Jorge Ponce, 2020. "Digitalization, retail payments and Central Bank Digital Currency," Revista de Estabilidad Financiera, Banco de España, issue Autumn.
    4. Jorge Ponce & Magdalena Tubio, 2010. "Estabilidad financiera: conceptos básicos," Documentos de trabajo 2010004, Banco Central del Uruguay.
    5. Mario Bergara & Gerardo Licandro & Jorge Ponce, 2012. "Financial stability nets. Complementing and reinforcing micro and macro perspectives," Documentos de trabajo 2012002, Banco Central del Uruguay.

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    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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