Regulating Risk: A Measured Response to the Banking Crisis

McIlroy, David H.

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