Torre, Augusto de laIze, Alain2012-08-132012-08-132009-11https://hdl.handle.net/10986/10226What market and regulatory issues led to the subprime crisis? How should prudential regulation be fixed? The answers depend on the interpretative lenses or 'paradigms' through which one sees finance. The agency paradigm, which has dominated recent regulatory policy, seems to be influencing much of the emerging reform agenda. But collective welfare failures particularly externalities and collective cognition failures particularly mood swings were at least as important in driving the crisis. All three paradigms should therefore be integrated into a more balanced policy agenda. But doing so will be difficult because they often have inconsistent policy implications.CC BY 3.0 IGOADVERSE SELECTIONAGENCY PROBLEMAGENCY PROBLEMSARBITRAGEASSET PRICESASYMMETRIC INFORMATIONBALANCE SHEETBANK POLICYBANK RUNSBANKING CRISISBANKING SYSTEMBARGAININGBORROWERCAPITAL MARKETCENTRAL BANKCOLLECTIVE ACTIONCOMMERCIAL BANKINGCOMMERCIAL BANKSCONFLICTS OF INTERESTCONSUMER PROTECTIONCONTRACTUAL RELATIONSHIPSCOORDINATION FAILURESCREDIT DEFAULTCREDIT DEFAULT SWAPSDEBTDEBT CONTRACTSDEEDSDEFAULT RISKDEPOSITDEPOSIT INSURANCEDEPOSIT RATESDEPOSITORDEPOSITORSECONOMIC CONDITIONSEMERGING-MARKETENTRY REQUIREMENTSEXPOSUREEXPOSURE TO RISKEXTERNALITIESFEDERAL RESERVEFEDERAL RESERVE BANKFEDERAL RESERVE BANK OF NEW YORKFEDERAL RESERVE SYSTEMFINANCIAL CRISESFINANCIAL INNOVATIONFINANCIAL INSTITUTIONSFINANCIAL INTERMEDIARIESFINANCIAL INTERMEDIATIONFINANCIAL MARKETFINANCIAL MARKETSFINANCIAL REFORMSFINANCIAL REGULATIONFINANCIAL SECTORFINANCIAL SERVICESFINANCIAL STABILITYFINANCIAL SYSTEMFINANCIAL TRANSACTIONSFINANCIAL VOLATILITYGLOBAL BANKINGGOVERNANCE ISSUESHOLDINGHOUSINGHOUSING PRICESIMPERFECT INFORMATIONINFORMED INVESTORSINSTRUMENTINSURANCEINVESTOR PROTECTIONINVESTORS DEPOSITSIRRATIONAL EXUBERANCELENDERLENDER OF LAST RESORTLIQUIDITYLOANMARK-TO-MARKETMARKET DISCIPLINEMARKET FAILUREMARKET FAILURESMARKET INEFFICIENCIESMARKET LIQUIDITYMARKET PARTICIPANTSMARKET PLAYERSMARKET PRACTICESMATURITYMATURITY MISMATCHMATURITY MISMATCHESMONETARY FUNDMORAL HAZARDMORTGAGEMORTGAGE CREDITOPPORTUNISTIC BEHAVIORPOLICY RESPONSESPORTFOLIOSPRICE VOLATILITYPRINCIPAL-AGENT PROBLEMSPRIVATE SECTOR DEVELOPMENTPRUDENTIAL REGULATIONPRUDENTIAL REGULATIONSPUBLIC POLICYREGULATORREGULATORSREGULATORY FRAMEWORKREGULATORY REGIMERELATIONSHIP LENDINGRETURNSRISK ASSESSMENTSRISK AVERSIONRISK MANAGEMENTRISK TAKINGSAFETYSAFETY NETSAVINGSSECURITIESSECURITIES MARKETSECURITIES MARKET REGULATIONSSECURITIZATIONSHAREHOLDERSSHORT-TERM BORROWINGSOCIAL COSTSSTOCK PRICESSUPERVISORY AGENCYSUPPLIERSSYSTEMIC RISKSYSTEMIC RISKSTAXTRADITIONAL BANKINGTRANSPARENCYWHOLESALE FUNDINGWHOLESALE INVESTORSWORLD ECONOMYWorld Bank10.1596/10226