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Prudential Discipline for Financial Firms: Micro, Macro, and Market Structures

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  • Larry D. Wall
Abstract
The recent global financial crisis reflects numerous breakdowns in the prudential discipline of financial firms. This paper discusses ways to strengthen micro- and macroprudential supervision and restore credible market discipline. The discussion notes that microprudential supervisors are typically assigned a variety of goals that sometimes have conflicting policy implications. In such a setting, the structure of the regulatory agencies and the priority given to prudential goals are critical to achieving those goals. [ADBI Working Paper 176]

Suggested Citation

  • Larry D. Wall, 2010. "Prudential Discipline for Financial Firms: Micro, Macro, and Market Structures," Working Papers id:3040, eSocialSciences.
    • Handle: RePEc:ess:wpaper:id:3040
    Note: Institutional Papers
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    References listed on IDEAS

    as
    1. Raghuram G. Rajan, 2013. "The Credit Crisis and Cycle-Proof Regulation," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 461-467.
    2. Kane, Edward J, 1977. "Good Intentions and Unintended Evil: The Case against Selective Credit Allocation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 9(1), pages 55-69, February.
    3. Wall, Larry D., 2009. "Prudential Discipline for Financial Firms: Micro, Macro, and Market Structures," ADBI Working Papers 176, Asian Development Bank Institute.
    4. Larry Wall & Robert Eisenbeis, 1999. "Financial Regulatory Structure and the Resolution of Conflicting Goals," Journal of Financial Services Research, Springer;Western Finance Association, vol. 16(2), pages 223-245, December.
    5. Adam Ashcraft & Morten L. Bech & W. Scott Frame, 2010. "The Federal Home Loan Bank System: The Lender of Next-to-Last Resort?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(4), pages 551-583, June.
    6. Larry D. Wall, 1986. "Nonbank activities and risk," Economic Review, Federal Reserve Bank of Atlanta, issue Oct, pages 19-34.
    7. Mayes, David G. & Nieto, María J. & Wall, Larry, 2008. "Multiple safety net regulators and agency problems in the EU: Is Prompt Corrective Action partly the solution?," Journal of Financial Stability, Elsevier, vol. 4(3), pages 232-257, September.
    8. Carlos Arteta & Mark Carey & Ricardo Correa & Jason Kotter, 2020. "Revenge of the Steamroller: ABCP as a Window on Risk Choices," Review of Finance, European Finance Association, vol. 24(3), pages 497-528.
    9. Gillian G.H. Garcia, 2009. "Ignoring the lessons for effective prudential supervision, failed bank resolution and depositor protection," Journal of Financial Regulation and Compliance, Emerald Group Publishing Limited, vol. 17(3), pages 186-209, July.
    10. Oliver Hart & Luigi Zingales, 2011. "A New Capital Regulation for Large Financial Institutions," American Law and Economics Review, American Law and Economics Association, vol. 13(2), pages 453-490.
    11. Kristopher Gerardi & Andreas Lehnert & Shane M. Sherlund & Paul Willen, 2008. "Making Sense of the Subprime Crisis," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 39(2 (Fall)), pages 69-159.
    12. Lawrence J. White & W. Scott Frame, 2009. "The Federal Home Loan Bank System: Current Issues in Perspective," Working Papers 09-18, New York University, Leonard N. Stern School of Business, Department of Economics.
    13. Gillian G.H. Garcia & Rosa M. Lastra & María J. Nieto, 2009. "Bankruptcy and reorganization procedures for cross‐border banks in the EU," Journal of Financial Regulation and Compliance, Emerald Group Publishing Limited, vol. 17(3), pages 240-276, July.
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    Citations

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    Cited by:

    1. Jérôme Coffinet & Adrian Pop & Muriel Tiesset, 2010. "Predicting Financial Distress in a High-Stress Financial World: The Role of Option Prices as Bank Risk Metrics," Working Papers hal-00547744, HAL.
    2. Larry D. Wall, 2012. "Central banking for financial stability Some lessons from the recent instability in the US and euro area," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 8(3), pages 247-280, August.
    3. Larry D. Wall, 2012. "Enlisting Macroprudential and Market Regulatory Structures to Strengthen Prudential Supervision," Chapters, in: Masahiro Kawai & David G. Mayes & Peter Morgan (ed.), Implications of the Global Financial Crisis for Financial Reform and Regulation in Asia, chapter 3, Edward Elgar Publishing.
    4. Siregar, Reza, 2011. "Macro-Prudential Approaches to Banking Regulation: Perspectives of Selected Asian Central Banks," ADBI Working Papers 325, Asian Development Bank Institute.
    5. Robert N. Collender & Forrest W. Pafenberg & Robert S. Seiler, Jr., 2010. "Automatic Recapitalization Alternatives," FHFA Staff Working Papers 10-02, Federal Housing Finance Agency.
    6. Reza Siregar & Lim, C.S. Vincent, 2011. "Living with Macro-financial Linkages: Policy Perspectives and Challenges for SEACEN Countries," Staff Papers, South East Asian Central Banks (SEACEN) Research and Training Centre, number sp79.
    7. David G. Mayes, 2009. "Banking Crisis Resolution Policy - Lessons from Recent Experience - which elements are needed for robust and efficient crisis resolution?," CESifo Working Paper Series 2823, CESifo.
    8. Wall, Larry D., 2009. "Prudential Discipline for Financial Firms: Micro, Macro, and Market Structures," ADBI Working Papers 176, Asian Development Bank Institute.
    9. Jérôme Coffinet & Adrian Pop & Muriel Tiesset, 2013. "Monitoring Financial Distress in a High-Stress Financial World: The Role of Option Prices as Bank Risk Metrics," Journal of Financial Services Research, Springer;Western Finance Association, vol. 44(3), pages 229-257, December.
    10. David G. Mayes, 2012. "Moral Hazard, Bank Resolution and the Protection of Depositors," Chapters, in: James R. Barth & Chen Lin & Clas Wihlborg (ed.), Research Handbook on International Banking and Governance, chapter 14, Edward Elgar Publishing.
    11. Wall, Larry D., 2012. "Central Banking for Financial Stability: Some Lessons from the Recent Instability in the United States and Euro Area," ADBI Working Papers 379, Asian Development Bank Institute.

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    More about this item

    Keywords

    global financial crisis; prudential; discipline; financial firms; policy; achieving; goals;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law

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