Table of Contents

Handbook of International Banking

Handbook of International Banking

Elgar original reference

Edited by Andrew W. Mullineux and Victor Murinde

The Handbook of International Banking provides a clearly accessible source of reference material, covering the main developments that reveal how the internationalization and globalization of banking have developed over recent decades to the present, and analyses the creation of a new global financial architecture.

Chapter 16: Some Lessons for Bank Regulation from Recent Financial Crises

David T. Llewellyn

Subjects: economics and finance, financial economics and regulation, money and banking


16. Some lessons for bank regulation from recent financial crises David T. Llewellyn* 1 INTRODUCTION AND OUTLINE Our objective is to consider the experience of recent banking crises in both developed and developing countries, and to draw lessons most especially with respect to the regulation and supervision of banks, and the design of an optimum ‘regulatory regime’. This will be done by setting out a series of general principles designed to lower the probability of banking distress. Just as the causes of banking crises are multidimensional, so the principles of an effective regulatory regime also need to incorporate a wider range of issues than externally imposed rules on bank behaviour. What will be termed a ‘regulatory regime’ also includes the arrangements for intervention in the event of bank distress and failures. This is because they have incentive and moral hazard effects which potentially influence future behaviour of banks and their customers and the probability of future crises. The focus of the chapter is a consideration of alternative approaches to achieving the objectives of regulation: systemic stability and consumer protection. A central theme is that what are often regarded as ‘alternatives’ are in fact complements within an overall regulatory strategy. As the regulatory regime is wider than the rules and monitoring conducted by regulatory agencies, the skill in constructing a regulatory strategy lies in how the various components of the regime are combined. When a particular regulatory problem emerges, the instinct of a regulator is often to create...

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