Commentary: Systemic Risk: Changing the Regulatory
by Jean-Charles Rochet
University of Zürich and Toulouse School of Economics
The article puts forward the view that the regulatory perspective
on systemic risk should be changed drastically. The
sub-prime crisis has indeed revealed many loopholes in the
supervisory/regulatory framework for banks—in particular,
the inability to deal with the too-big-to-fail syndrome and
also the lack of resiliency of interbank and money markets.
To a large extent, the contagion phenomena that took place in
these markets were the necessary outcomes of the passive attitude
of banking supervisors, who have let large banks develop a
complex and opaque nexus of bilateral obligations. We propose
two reforms: adopting a platform-based (instead of institutionbased)
regulatory perspective on systemic risk and encouraging
a generalized move to central counterparty clearing.
JEL Codes: G21, L51.
(PDF, 18 pages 199 kb)