Economic Analysis of Financial Regulation - Types of financial regulation - Banking crisis throughout the world

7 important questions on Economic Analysis of Financial Regulation - Types of financial regulation - Banking crisis throughout the world

Why is the deposit insurance not to blame for some of these banking crisis?

The common feature of these crises is the existence of a government safety net, where the government stands ready to bail out troubled financial institutions.

In what resulted the global financial crises?

In popular pressure to regulate banks and curb the remuneration and bonus culture in the banking industry
• more capital against losses and better quality of capital

• new guidelines for remuneration practices of banks (2010)

How did they create a better protection of private investors?

• “ringfence” retail banking from wholesale banking (2011)
• EBA: European Banking Authority was set up to oversee national bank regulators in the EU to fight against regulatory arbitrage
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What does the EBA do? (European Banking Authority)

• Guidelines for setting banker’s remuneration
• Setting of minimum capital requirements for banks operating in the EU

Impact of the global financial crisis on regulation?

• Given the size of the bailouts, it is safe to assume the system of financial regulation will never be the same
•  Financial innovations of subprime mortgages and structured credit products like CDOs helped trigger the crisis

Pros and cons of financial regulation?

Pros: democratization of credit
Cons: problems of the originate to distribute business model

What is the danger of overregulation?

Too much or too poorly designed regulation could hamper the efficiency of the financial system
Choking financial innovation that can benefit households and businesses

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