Čihák, MartinDemirgüç-Kunt, AslıJohnston, R. Barry2013-01-292013-01-292013-01https://hdl.handle.net/10986/12199A large body of evidence points to misaligned incentives as having a key role in the run-up to the global financial crisis. These include bank managers' incentives to boost short-term profits and create banks that are "too big to fail," regulators' incentives to forebear and withhold information from other regulators in stressful times, and credit rating agencies' incentives to keep issuing high ratings for subprime assets. As part of the response to the crisis, policymakers and regulators also attempted to address some incentive issues, but various outside observers have criticized the response for being insufficient. This paper proposes a pragmatic approach to re-orienting financial regulation to have at its core the objective of addressing incentives on an ongoing basis. Specifically, the paper proposes "incentive audits" as a tool that could help in identifying incentive misalignments in the financial sector. The paper illustrates how such audits could be implemented in practice, and what the implications would be for the design of policies and frameworks to mitigate systemic risks.en-USCC BY 3.0 IGOACCOUNTABILITYACCOUNTINGADVANCED ECONOMIESADVERSE SELECTIONARBITRAGEASYMMETRIC INFORMATIONAUDITINGAUDITORSAUDITSAUTONOMYBALANCE SHEETBANK FAILURESBANK FOR INTERNATIONAL SETTLEMENTSBANK HOLDINGBANK HOLDING COMPANIESBANK OF ENGLANDBANK REGULATIONBANK RISKBANKING CRISESBANKING CRISISBANKING INSTITUTIONSBANKING REGULATIONBANKING SECTORBANKING SUPERVISIONBANKING SYSTEMBANKRUPTCYBANKRUPTCY PROCEDURESBANKSBANQUE DE FRANCEBOOM-BUST CYCLESCAPITAL ACCORDCAPITAL ADEQUACYCAPITAL RATIOSCAPITAL REGULATIONCAPITAL REQUIREMENTSCAPITAL STANDARDSCENTRAL BANKCENTRAL BANKINGCHECKSCLEARING HOUSESCOLLATERALCOLLATERAL POLICIESCOMMERCIAL BANKCOMMERCIAL BANKSCOMPETITION POLICYCONFLICT OF INTERESTCONFLICTS OF INTERESTCONSUMER PROTECTIONCONTRACT DESIGNCORPORATE GOVERNANCECREDIBILITYCREDIT CEILINGSCREDIT DEFAULTCREDIT DEFAULT SWAPSCREDIT ENHANCEMENTSCREDIT EXPANSIONCREDIT GROWTHCREDIT RATINGCREDIT RATING AGENCIESCREDIT RATINGSCREDIT RISKCREDIT RISK ASSESSMENTCREDIT WORTHINESSDEBTDEBT SERVICEDEBTORSDEFAULTSDEPOSITDEPOSIT INSURANCEDEPOSIT INSURANCE SCHEMESDERIVATIVESDEVELOPING COUNTRIESDEVELOPING ECONOMIESDISCLOSURE REQUIREMENTSDUE DILIGENCEEMERGING MARKETSEXCHANGE RATEEXCHANGE RATE REGIMESEXPOSUREEXTERNALITIESFEDERAL RESERVEFEDERAL RESERVE BANKFINANCIAL CRISESFINANCIAL CRISISFINANCIAL DERIVATIVESFINANCIAL DEVELOPMENTFINANCIAL INFORMATIONFINANCIAL INNOVATIONFINANCIAL INSTITUTIONFINANCIAL INSTITUTIONSFINANCIAL MARKETSFINANCIAL POLICIESFINANCIAL PRODUCTSFINANCIAL REFORMFINANCIAL REGULATIONFINANCIAL SAFETY NETSFINANCIAL SECTORFINANCIAL SERVICESFINANCIAL SERVICES INDUSTRYFINANCIAL STABILITYFINANCIAL SYSTEMFINANCIAL SYSTEM STABILITYFINANCIAL SYSTEMSFINANCIAL TRANSACTIONSFISCAL AUTHORITIESFLOW OF CREDITFOREIGN CURRENCYGLOBAL FINANCIAL STABILITYGLOBAL FINANCIAL SYSTEMGOVERNMENT REGULATIONHEDGE FUNDSHOME OWNERSHIPHOUSINGINCENTIVE STRUCTURESINCOMEINFORMATION ASYMMETRIESINFORMATION DISCLOSURESINSURANCEINSURANCE MARKETSINTEREST RATEINTEREST RATE POLICIESINTEREST RATE SPREADSINTERNAL CONTROLSINTERNATIONAL BANKINTERNATIONAL STANDARDSINVESTINGINVESTOR PROTECTIONJURISDICTIONJURISDICTIONSLACK OF TRANSPARENCYLAWSLEGISLATIONLENDERLENDER OF LAST RESORTLIABILITYLIQUIDITYLIQUIDITY RISKLOANMACROECONOMIC POLICYMANDATESMARK-TO-MARKETMARK-TO-MARKET ACCOUNTINGMARKET DISCIPLINEMARKET FAILUREMARKET FAILURESMARKET PARTICIPANTSMARKET STRUCTUREMARKET VALUEMONETARY AUTHORITYMONETARY FUNDMONETARY POLICYMORAL HAZARDMORTGAGEMORTGAGE LENDINGMORTGAGE MARKETMORTGAGESOPERATIONAL INDEPENDENCEPARTICULAR COUNTRYPAYMENT SYSTEMPAYMENTS SYSTEMSPOLICY RESPONSEPOLICY RESPONSESPORTFOLIOPRIVATE SECTOR DEVELOPMENTPRUDENTIAL REGULATIONPRUDENTIAL REGULATIONSPRUDENTIAL SUPERVISIONPUBLIC FUNDSRAPID GROWTHRATING AGENCIESREAL ESTATEREGULATORREGULATORSREGULATORY AGENCIESREGULATORY AUTHORITIESREGULATORY BODIESREGULATORY CAPITALREGULATORY FRAMEWORKREGULATORY FRAMEWORKSREGULATORY GOVERNANCEREGULATORY REGIMESREGULATORY SYSTEMSRETURNSRISK ASSESSMENTSRISK CAPITALRISK CONTROLSRISK EXPOSURESRISK MANAGEMENTRISK MANAGEMENT SYSTEMSRISK MANAGERSRISK MEASUREMENTRISK TAKINGRISK WEIGHTSSAFETY NETSECURITIESSHAREHOLDERSSMALL COUNTRIESSOLVENCYSOVEREIGN DEBTSOVEREIGN DEBTSSTOCK OPTIONSSUPERVISION OF BANKSSUPERVISORY AUTHORITIESSUPERVISORY AUTHORITYSUPERVISORY FRAMEWORKSUPERVISORY POWERSSYSTEMIC RISKSYSTEMIC RISKSTAXTAX CODETAX INCENTIVESTAX SYSTEMTRADINGTRANSPARENCYTURNOVERUNDERWRITERSVALUATIONSWAGESWorld Bankhttps://doi.org/10.1596/1813-9450-6308