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Financial innovation and system design

Author

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  • Mario Tonveronachi

    (Universita' degli Studi di Siena. Dipartimento di Economia politica)

Abstract

The official regulatory responses to the current crisis do not alter the laissez faire approach to the production and allocation of financial risks which characterises the existing regulatory framework. The stated goal remains that of maintaining the freedom for the private sector to introduce financial innovations, whose nature is consistent with the system design pursued by the official authorities. I argue that adopting a systemic perspective the crucial point is not just the nature of innovations but their quantitative dimension and dynamics, which are responsible for the endogenous creation of financial fragility. The new official proposals do not appear capable of changing this picture. A radical revision of the regulatory approach is necessary, of which an outline is presented.

Suggested Citation

  • Mario Tonveronachi, 2010. "Financial innovation and system design," PSL Quarterly Review, Economia civile, vol. 63(253), pages 131-144.
    • Handle: RePEc:psl:pslqrr:2010:23
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    File URL: http://ojs.uniroma1.it/index.php/PSLQuarterlyReview/article/view/9432/9327
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    References listed on IDEAS

    as
    1. W. Scott Frame & Lawrence J. White, 2004. "Empirical Studies of Financial Innovation: Lots of Talk, Little Action?," Journal of Economic Literature, American Economic Association, vol. 42(1), pages 116-144, March.
    2. Jan Kregel, 2009. "Observations on the Problem of 'Too Big to Fail/Save/Resolve'," Economics Policy Note Archive 09-11, Levy Economics Institute.
    3. Jan Kregel, 2009. "Managing the Impact of Volatility in International Capital Markets in an Uncertain World," Economics Working Paper Archive wp_558, Levy Economics Institute.
    4. Deniz Igan & Prachi Mishra & Thierry Tressel, 2012. "A Fistful of Dollars: Lobbying and the Financial Crisis," NBER Macroeconomics Annual, University of Chicago Press, vol. 26(1), pages 195-230.
    5. Jan Kregel, 2010. "No Going Back: Why We Cannot Restore Glass-Steagall's Segregation of Banking and Finance," Economics Public Policy Brief Archive ppb_107, Levy Economics Institute.
    6. Mario Tonveronachi, 2001. "Structural biases in prudential regulation of banks," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 54(219), pages 341-353.
    7. Mario Tonveronachi, 2001. "Structural biases in prudential regulation of banks," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 54(219), pages 341-353.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Mario Tonveronachi, 2010. "Empowering supervisors with more principles and discretion to implement them will not reduce the dangers of the prudential approach to financial regulation," PSL Quarterly Review, Economia civile, vol. 63(255), pages 363-378.
    2. Alessandro Roncaglia, 2010. "Contributions on monetary and financial issues: an introduction," PSL Quarterly Review, Economia civile, vol. 63(253), pages 99-102.

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    More about this item

    Keywords

    Financial Crisis; Rules; Banking System;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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