de la Torre, AugustoIze, Alain2012-03-192012-03-192011-01-01https://hdl.handle.net/10986/3296Financial crises can happen for a variety of reasons: (a) nobody really understands what is going on (the collective cognition paradigm); (b) some understand better than others and take advantage of their knowledge (the asymmetric information paradigm); (c) everybody understands, but crises are a natural part of the financial landscape (the costly enforcement paradigm); or (d) everybody understands, yet no one acts because private and social interests do not coincide (the collective action paradigm). The four paradigms have different and often conflicting prudential policy implications. This paper proposes and discusses three sets of reforms that would give due weight to the insights from the collective action and collective cognition paradigms by redrawing the regulatory perimeter to internalize systemic risk without promoting dynamic regulatory arbitrage; introducing a truly systemic liquidity regulation that moves away from a purely idiosyncratic focus on maturity mismatches; and building up the supervisory function while avoiding the pitfalls of expanded official oversight.CC BY 3.0 IGOACCOUNTINGADVERSE SELECTIONAGENCY PROBLEMSARBITRAGEASSET MANAGERSASSET PRICESASSET PRICINGASYMMETRIC INFORMATIONBAILOUTSBALANCE SHEETBALANCE SHEETSBANK CAPITALBANK OF ENGLANDBANK RUNSBANKING CRISESBANKING CRISISBANKING SYSTEMBARGAININGBORROWERBORROWINGBUSINESS CYCLEBUSINESS OPPORTUNITIESCAPITAL CONSTRAINTSCAPITAL FLOWSCAPITAL MARKETCAPITAL MARKETSCAPITAL REGULATIONCAPITAL REQUIREMENTSCENTRAL BANKCLOSED ECONOMYCOLLATERALCOLLECTIVE ACTIONCOMMERCIAL BANKINGCOMMERCIAL BANKSCONFLICT OF INTERESTCONTAINING SYSTEMIC RISKCONTRACT ENFORCEMENTCONTRACT RIGHTSCOORDINATION FAILURECOORDINATION FAILURESCREDIT EXPANSIONSCREDIT RISKCREDIT RISK EXPOSURESDEBTDEBT CONTRACTSDEBT ISSUESDEEDSDEFAULT RISKDEPOSITDEPOSIT INSURANCEDEPOSITORSDEPOSITSDEREGULATIONDISPLACEMENTDOUBLE TAXATIONDOWNSIDE RISKSDRIVERSECONOMIC GROWTHEMERGING MARKETSEMPLOYMENTENTRY REQUIREMENTSEUROPEAN CENTRAL BANKEXPOSUREEXPOSURE TO RISKSEXTERNALITIESFAILURE RESOLUTIONFEDERAL RESERVEFEDERAL RESERVE BANKFEDERAL RESERVE BANK OF NEW YORKFINANCIAL CONTRACTSFINANCIAL CRISESFINANCIAL CRISISFINANCIAL DEVELOPMENTFINANCIAL FRAGILITYFINANCIAL INNOVATIONFINANCIAL INNOVATIONSFINANCIAL INSTITUTIONSFINANCIAL INTERMEDIARIESFINANCIAL INTERMEDIARYFINANCIAL INTERMEDIATIONFINANCIAL MARKETSFINANCIAL POLICIESFINANCIAL PRODUCTSFINANCIAL REFORMFINANCIAL REGULATIONFINANCIAL SERVICESFINANCIAL STABILITYFINANCIAL STRUCTUREFINANCIAL STUDIESFINANCIAL SYSTEMFINANCIAL SYSTEMSFINANCIAL TRANSACTIONSFISCAL POLICYFRAUDGLOBAL BANKINGHOLDINGHOLDINGSHOUSINGILLIQUID ASSETSIMPERFECT INFORMATIONINCOMPLETE MARKETSINFORMATION ASYMMETRIESINFORMATION ASYMMETRYINFORMED INVESTORSINSURANCE PREMIUMINTEREST RATESINTERNATIONAL BANKINTERNATIONAL ECONOMICSINTERNATIONAL FINANCEINTERNATIONAL FINANCIAL CRISISINVESTINGINVESTMENT BANKSINVESTMENT DECISIONSINVESTMENT OPPORTUNITIESINVESTOR PROTECTIONIRRATIONAL EXUBERANCELENDERLENDER OF LAST RESORTLENDER-OF-LAST-RESORTLENDERSLEVEL PLAYING FIELDLIABILITYLIQUID INVESTMENTSLIQUID MARKETSLIQUIDITYLIQUIDITY RISKLOANMACROECONOMIC CONDITIONSMARKET ACCESSMARKET DISCIPLINEMARKET EQUILIBRIUMMARKET FAILUREMARKET FAILURESMARKET INEFFICIENCIESMARKET LIQUIDITYMARKET MICROSTRUCTUREMARKET PARTICIPANTSMARKET PLAYERSMARKET PRICESMARKET SEGMENTATIONMARKET SPECIALISTSMATURITYMATURITY MISMATCHMATURITY MISMATCHESMONETARY FUNDMONETARY POLICYMORAL HAZARDOPEN ECONOMYPARTICIPATIONSPECUNIARY EXTERNALITIESPOLITICAL ECONOMYPORTFOLIOSPRIVATE CAPITALPROVISIONING RULESPRUDENTIAL REGULATIONPRUDENTIAL REGULATIONSPUBLIC DEBTPUBLIC INVESTMENTPUBLIC POLICYRAPID GROWTHREAL ESTATEREGULATORREGULATORSREGULATORY APPROACHESREGULATORY CONSTRAINTSREGULATORY FRAMEWORKREGULATORY REGIMESREGULATORY SYSTEMREGULATORY TREATMENTRELATIONSHIP LENDINGREPAYMENTREPUTATIONRETURNRETURNSRISK ASSESSMENTSRISK AVERSIONRISK MANAGEMENTRISK NEUTRALRISK SHARINGRISK TAKINGRISK WEIGHTSSAFETYSAFETY NETSAVINGSSECONDARY MARKETSSECURITIESSECURITIES MARKETSECURITIES MARKET REGULATIONSSECURITIZATIONSOCIAL BENEFITSSOCIAL COSTSSOCIAL RISKSSUPERVISORY AGENCYSYSTEMIC INSTABILITYSYSTEMIC RISKSYSTEMIC RISKSTAXTAX RATETAX SYSTEMTRADITIONAL BANKINGTRANSACTIONTRANSACTION COSTSTRANSPARENCYVOLATILITYWHOLESALE FINANCEWHOLESALE FUNDINGWHOLESALE INVESTORSWORLD ECONOMYWorld Bank10.1596/1813-9450-5523