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Regulating Risk: A Measured Response to the Banking Crisis

McIlroy, David H.

Authors

David H. McIlroy



Abstract

This paper argues that regulatory responses to the sub-prime crisis ought to be guided by the fundamental principle that bank regulation is justified by the adverse consequences of banks taking excessive risks. It therefore proposes three reforms: requiring banks to retain a proportion of any loan which they originate, so as to reduce the risks of moral hazard; insisting that the risks involved in the financial products in which banks trade are transparent; and reforming Basel II so that the amounts of regulatory capital which banks are required to hold are less pro-cylical than is currently the case.

Citation

McIlroy, D. H. (2008). Regulating Risk: A Measured Response to the Banking Crisis. Journal of Banking Regulation, 9(4), 284-292. https://doi.org/10.1057/jbr.2008.15

Journal Article Type Article
Publication Date Aug 1, 2008
Deposit Date Sep 29, 2008
Journal Journal of Banking Regulation
Print ISSN 1745-6452
Electronic ISSN 1750-2071
Publisher Palgrave Macmillan
Peer Reviewed Peer Reviewed
Volume 9
Issue 4
Pages 284-292
DOI https://doi.org/10.1057/jbr.2008.15
Keywords ORIGINATE AND DISTRIBUTE; SECURITISATION; MORAL HAZARD; RISK TRANSPARENCY; BASEL II; TOO BIG TO FAIL


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