Regulatory reform
Subtitle: integrating paradigms
By: Augusto de la Torre, Alain Ize.
Contributors: Ize, Alain.; World Bank.
Series: Policy research working paper -- 4842; Policy research working papers (Online) -- 4842.
Publisher: World Bank
Published: 2009
Place of publication: [Washington, D.C
Language: eng
Format: Electronic resource
Subjects: Subprime mortgage loans
Description: "The Subprime crisis largely resulted from failures to internalize systemic risk evenly across financial intermediaries and recognize the implications of Knightian uncertainty and mood swings.  A successful reform of prudential regulation will need to integrate more harmoniously the three paradigms of moral hazard, externalities, and uncertainty.  This is a tall order because each paradigm leads to different and often inconsistent regulatory implications.  Moreover, efforts to address the central problem under one paradigm can make the problems under the others worse.  To avoid regulatory arbitrage and ensure that externalities are uniformly internalized, all prudentially regulated intermediaries should be subjected to the same capital adequacy requirements, and unregulated intermediaries should be financed only by regulated intermediaries.  Reflecting the importance of uncertainty, the new regulatory architecture will also need to rely less on markets and more on "holistic" supervision, and incorporate countercyclical norms that can be adjusted in light of changing circumstances.   "--World Bank web site.
Notes: Title from PDF file as viewed on 3/17/2009.

Includes bibliographical references.

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Mode of access: World Wide Web.