Financial Regulation

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Reforming Capital Requirements for Financial Institutions

Author: Squam Lake Working Group on Financial Regulation

This Working Paper, the second in a series from the Squam Lake Working Group distributed by the Center for Geoeconomic Studies, argues that regulators consider systemic effects when setting bank capital requirements. Everything else the same, capital requirements should be proportionately higher for larger banks, banks that hold more illiquid assets, and banks that finance more of their operations with short-term debt. But capital requirements are not free. When designing capital requirements that address systemic concerns, regulators must weigh the costs such requirements impose on banks during good times against the benefit of having more capital in the financial system when a crisis strikes.

See more in Global; Financial Markets; Financial Regulation


A Risky 'Systemic' Watchdog

Author: Sebastian Mallaby
Washington Post

Sebastian Mallaby writes that the Frank proposal for a new "systemic risk regulator" is dubious. The sad truth is that crowded trades are near-impossible for the government to identify.

See more in Financial Regulation; United States


Testing Time for a Young Administration

Author: Roger M. Kubarych

In this Nikkei op-ed, Roger Kubarych analyzes the early challenges facing the Obama administration with regards to the economic crisis. He writes that the ugly stock market response to the Geithner plan will make it all the harder to recapitalize the U.S. financial system without taxpayers footing the bill.

See more in Financial Crises; Financial Regulation; United States


McKinsey Executive Roundtable Series in International Economics: Beyond Firefighting: Rethinking Financial Market Regulation (Audio)

Speakers: William H. Donaldson, Stephen Friedman, and Ernest Patrikis
Presider: John Gapper

Listen to experts including former Securities and Exchange Commission Chairman William Donaldson discuss what implications the 2008 financial crisis is likely to have for securities regulation.

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Demons on Wall Street

Author: Sebastian Mallaby
Washington Post

One year ago, with spectacular timing, a Wall Streeter named Richard Bookstaber published a book on financial engineering. He called it "A Demon of Our Own Design," and his argument was that a new breed of "quants" had created a system too complex to be manageable. In this Washington Post op-ed, Sebastian Mallaby agrees with Dr. Bookstaber that—in the wake of Bear Stearns—modern financial engineering has become harder to defend.

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Must Read

IMF: What's Driving Investment in China?

Authors: Steven Barnett and Ray Brooks

Investment has grown rapidly in China in recent years, reaching more than 40 percent of GDP. Despite good progress on bank and enterprise reforms, this paper from the IMF argues that weaknesses remain that could contribute to inefficient investment decisions, and that the regulation of state lending to state-owned companies needs to be reformed further if productive investment is to be maintained.

See more in China; Financial Markets; Financial Regulation