The paper focuses on regulation and supervision as one of main causes of the recent global financial crisis. Because regulation and supervision could not mend the lax risk management simultaneously observed in the US and Europe, the paper reviews the prudential policy principles informally shared with the most authorities in major countries.
The policy principles were changed under the financial innovation and the risk management revolution in the 90s. The paper, at first, reviews the main thrusts of those principles such as the rolls of regulation and supervision, the balance between risk taking by financial institutions and the financial system stability, risk sensitive regulation with incentive compatibility, rolls of market discipline, supervisory review on the risk management frameworks, and how to address procyclicality.
Secondly, the paper reviews, in the context of the financial crisis, components among the principles had been changed, had not been achieved, and had not been adjusted to the new environments.
Finally, based on the above analysis, the current policy proposals on the global financial system reform are reviewed. The paper discusses the importance of the incentive compatibility to avoid regulatory arbitrage, the supervision to address arbitrage and to contain systemic risk, the reconstruction of market discipline, and how to address the procyclicality. It also points out that the new liquidity requirement rules and proposed countercyclical measures would distort the incentive of the financial institutions and could be the sources of the next systemic risk accumulation.
プルーデンス政策の理念と金融危機
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麗澤経済研究21-2_④宮内篤
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