Handbook of Central Banking, Financial Regulation and Supervision
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Handbook of Central Banking, Financial Regulation and Supervision

After the Financial Crisis

Edited by Sylvester Eijffinger and Donato Masciandaro

This stimulating and original Handbook offers an updated and systematic discussion of the relationship between central banks, financial regulation and supervision after the global financial crisis.
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Chapter 14: Safe and Sound Banking: A Role for Countercyclical Regulatory Requirements?

Gerard Caprio


Gerard Caprio1 Introduction The financial crisis that began in the summer of 2007 and that has been termed the most serious crisis since the Great Depression has spawned not only a hunt for culprits and scapegoats, but also a search for regulatory solutions. A number of papers have already covered the diagnosis of the causes of the crisis and traced the propagation mechanisms (see Brunnermeier, 2009; Caprio, Demirgüç-Kunt, and Kane, 2008; Caprio, 2009; Greenlaw, Hatzius, Kashyap and Shin, 2008; and Gorton, 2009). Now the search is afoot in regulatory agencies in numerous countries, in fora such as the Basel Committee on Bank Supervision and the Financial Stability Board (formerly the Financial Stability Forum), and in academic circles, for ways to rebuild a regulatory framework in which the public will have confidence and which will promise to mitigate crises. One idea that is gaining support among various groups is how to This chapter was prepared with support from the World Bank and was completed while I was on leave as a Fulbright Scholar at Trinity College, Dublin. Accordingly I would like to thank the Fulbright Program, the Institute for International Integration Studies at Trinity College, and the Williams College World Fellowship Program. I benefitted greatly from the first-rate research assistance of Pablo Cuba Bordo, in particular the material on Colombia and Spain. Comments from James Barth, Asli Demirgüç-Kunt, Giovanni Ferri, Jim Hanson, and Ross Levine are gratefully acknowledged, though responsibility for the views espoused here remains with the author....

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