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The Way Forward

In: Improving Banking Supervision

Author

Listed:
  • David G. Mayes
  • Liisa Halme
  • Aarno Liuksila

Abstract

It has been our purpose in this book to explore whether, in the light of lessons from financial crises over the last decade or so and the way in which financial markets appear likely to develop in coming years, there are significant areas in which the framework of banking supervision could be improved — particularly in the European Economic Area. We have highlighted two main areas where considerable progress can be made The implementation of considerably more market discipline; The improvement of the powers to resolve difficulties in individual banks. While the second of these may appear to lie beyond the scope of supervision as such, it is an essential component of the framework of incentives needed to encourage prudent behaviour in banks. The message from many recent crises is that banks will be bailed out, particularly if they are large. This reduces the incentive to prudence and creates a ‘moral hazard’ that needs to be countered.

Suggested Citation

  • David G. Mayes & Liisa Halme & Aarno Liuksila, 2001. "The Way Forward," Palgrave Macmillan Books, in: Improving Banking Supervision, chapter 11, pages 256-268, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-28819-5_11
    DOI: 10.1057/9780230288195_11
    as

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