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Enhancing Prudential Standards in Financial Regulations

Author

Listed:
  • Franklin Allen

    (Imperial College London
    The Wharton School of the University of Pennsylvania)

  • Itay Goldstein

    (The Wharton School of the University of Pennsylvania)

  • Julapa Jagtiani

    (Federal Reserve Bank of Philadelphia)

  • William W. Lang

    (Federal Reserve Bank of Philadelphia
    Promontory Financial Group)

Abstract

The financial crisis has generated fundamental reforms in the financial regulatory system in the U.S. and internationally. Much of this reform was in direct response to the weaknesses revealed in the pre-crisis system. The new “macroprudential” approach to financial regulations focuses on risks arising in financial markets broadly as well as the potential impact on the financial system that may arise from financial distress at systemically important financial institutions. Systemic risk is the key factor in financial stability, but our current understanding of systemic risk is rather limited. While the goal of using regulation to maintain financial stability is clear, it is not obvious how to design an effective regulatory framework that achieves the financial stability objective while also promoting financial innovations. This article discusses academic research and expert opinions on this vital subject of financial stability and regulatory reforms. Specifically, among other issues, it discusses the impact of increasing public disclosure of supervisory information, effectiveness of bank stress testing as a tool to enhance financial stability, whether the financial crisis was caused by TBTF, and whether the DFA resolution regime would be effective in achieving financial stability and ending TBTF.

Suggested Citation

  • Franklin Allen & Itay Goldstein & Julapa Jagtiani & William W. Lang, 2016. "Enhancing Prudential Standards in Financial Regulations," Journal of Financial Services Research, Springer;Western Finance Association, vol. 49(2), pages 133-149, June.
    • Handle: RePEc:kap:jfsres:v:49:y:2016:i:2:d:10.1007_s10693-016-0253-2
    DOI: 10.1007/s10693-016-0253-2
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    Cited by:

    1. Franklin Allen & Itay Goldstein & Julapa Jagtiani, 2018. "The Interplay among Financial Regulations, Resilience, and Growth," Journal of Financial Services Research, Springer;Western Finance Association, vol. 53(2), pages 141-162, June.
    2. Allen, Franklin & Jagtiani, Julapa & Goldstein, Itay, 2018. "The Interplay between Financial Regulations, Resilience, and Growth," CEPR Discussion Papers 12861, C.E.P.R. Discussion Papers.
    3. Ballouk, Hossein & Ben Jabeur, Sami & Challita, Sandra & Chen, Chaomei, 2024. "Financial stability: A scientometric analysis and research agenda," Research in International Business and Finance, Elsevier, vol. 70(PA).
    4. Sophia Velez & Michael Neubert & Daphne Halkias, 2020. "Banking Finance Experts Consensus on Compliance in US Bank Holding Companies: An e-Delphi Study," JRFM, MDPI, vol. 13(2), pages 1-14, February.
    5. Simona HESEKOVA BOJMIROVA, 2022. "FinTech and Regulatory Sandbox – new challenges for the financial market. The case of the Slovak Republic," Juridical Tribune - Review of Comparative and International Law, Bucharest Academy of Economic Studies, vol. 12(3), pages 399-411, October.
    6. Sophia Beckett Velez, 2021. "Idiosyncratic Viral Loss Theory: Systemic Operational Losses in Banks," JRFM, MDPI, vol. 14(2), pages 1-13, February.
    7. Ahmad Alaassar & Anne-Laure Mention & Tor Helge Aas, 2023. "Facilitating innovation in FinTech: a review and research agenda," Review of Managerial Science, Springer, vol. 17(1), pages 33-66, January.
    8. Bevilacqua, Mattia & Duygun, Meryem & Vioto, Davide, 2023. "The impact of COVID-19 related policy interventions on international systemic risk," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 89(C).

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    More about this item

    Keywords

    Financial stability; Financial regulations; Systemic risk; Too big to fail; Stress testing; Resolution plan; Mortgage finance;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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