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Bank failures and regulation: a critical review

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  • PETITJEAN, Mikael

Abstract

Purpose - The purpose of this paper is to define the key components of an effective regulatory regime. Design/methodology/approach - The paper takes the form of a critical analysis. Findings - Regulatory arbitrage has been one of the major factors contributing to the severity of the crisis. Given the ever more complex set of future regulatory constraints, it may keep generating costly negative spillover effects on the whole economy. Moreover, rules‐based regulation, however carefully constructed, will unfortunately never prevent bank failures. Neither should it attempt to do so. An effective overall regulatory regime must be sufficiently comprehensive and well‐balanced. It must not put too much emphasis on lowering the probability of individual bank failure. The key components of an effective regulatory regime must be: Basel‐type rules robust to off‐balance‐sheet arbitrage; little forbearance in monitoring and supervision by regulatory agencies, with a focus on systemic risk control; automatic and quick intervention as well as resolution mechanisms. While all components are necessary, none is sufficient; and without strong international coordination, none will be effective. Practical implications - Enhanced supervision of banks. Social implications - Less costly bank failures. Originality/value - The paper presents a critical review of current financial reforms in the banking sector.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • PETITJEAN, Mikael, 2013. "Bank failures and regulation: a critical review," LIDAM Reprints CORE 2538, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvrp:2538
    Note: In : Journal of Financial Regulation and Compliance, 21(1), 16-38, 2013
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    Cited by:

    1. SK, Shanthi & Nangia, Vinay Kumar & Sircar, Sanjoy & Reddy, Kotapati Srinivasa, 2015. "Banking and Financial Regulation in Emerging Markets," MPRA Paper 74289, University Library of Munich, Germany, revised 2015.
    2. Festić Mejra, 2019. "International Environment: Recovery and Resolution Regimes as the Pillar of the Banking Union," Naše gospodarstvo/Our economy, Sciendo, vol. 65(2), pages 30-40, June.
    3. Michael Doumpos & Chrysovalantis Gaganis & Fotios Pasiouras, 2016. "Bank Diversification and Overall Financial Strength: International Evidence," Working Papers 1602, University of Crete, Department of Economics.
    4. Philippe Oster, 2020. "Contingent Convertible bond literature review: making everything and nothing possible?," Journal of Banking Regulation, Palgrave Macmillan, vol. 21(4), pages 343-381, December.

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