The Interplay between Regulations and Financial Stability

Allen, Franklin; Gu, Xian

Abstract

The crisis demonstrated that microprudential regulation focusing on the risks taken by individual banks is not sufficient to prevent crises. This is because it ignores systemic risk. Six types of systemic risk are identified, namely: (i) panics – banking crises due to multiple equilibria; (ii) banking crises due to asset price falls; (iii) contagion; (iv) financial architecture; (v) foreign exchange mismatches in the banking system; (vi) behavioral effects from Knightian uncertainty. We focus on the first three as they are arguably the main causes of the 2007–9 crisis and consider regulatory and other policies to counteract them.

Citation

Allen, F., & Gu, X. (2018). The Interplay between Regulations and Financial Stability. Journal of Financial Services Research, 53(2-3), 233-248. https://doi.org/10.1007/s10693-018-0296-7

• Journal Article Type: Article
• Acceptance Date: Mar 20, 2018
• Online Publication Date: Apr 18, 2018
• Publication Date: 2018-06
• Deposit Date: Aug 4, 2020
• Publicly Available Date: Aug 4, 2020
• Journal: Journal of Financial Services Research
• Print ISSN: 0920-8550
• Electronic ISSN: 1573-0735
• Publisher: Springer
• Peer Reviewed: Peer Reviewed
• Volume: 53
• Issue: 2-3
• Pages: 233-248
• DOI: https://doi.org/10.1007/s10693-018-0296-7
• Public URL: https://durham-repository.worktribe.com/output/1264773
• Related Public URLs: https://spiral.imperial.ac.uk/handle/10044/1/57848