Containing Systemic Risk : Are Regulatory Reform Proposals on the Right Track?
This note questions two emerging views on ways to tackle systemic risk. As evidenced by the explosive growth of investment banks, which were regulated more lightly because they were assumed to be systemically less important, regulatory unevenness c...
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| Language: | English |
| Published: |
World Bank, Washington, DC
2012
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| Online Access: | http://documents.worldbank.org/curated/en/2009/10/11953775/containing-systemic-risk-regulatory-reform-proposals-right-track http://hdl.handle.net/10986/10967 |
| Summary: | This note questions two emerging views
on ways to tackle systemic risk. As evidenced by the
explosive growth of investment banks, which were regulated
more lightly because they were assumed to be systemically
less important, regulatory unevenness can trigger acutely
destabilizing regulatory arbitrage. Hence, unless systemic
footprints can be accurately measured and updated, something
we think is unlikely, regulating differentially those
institutions that are deemed to be the most systemically
relevant looks like a perilous return to the past.
Similarly, internalizing systemic liquidity risk by taxing
maturity mismatches looks like a remnant of idiosyncratic
thinking. Matching short liabilities with short assets can
protect an individual intermediary's liquidity but at
the expense of exacerbating systemic vulnerability. |
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