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January 2013 issue
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Bernanke
Gertler, Karadi
Kim, Shin, Yun
Goodhart, Kashyap, Tsomocos, Vardoulakis
Orphanides, Wieland
Trichet
Duffie
Acharya, Sabri Öncü
King
Caruana
Shirakawa
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An Integrated Framework for Analyzing Multiple Financial Regulations

by Charles A. E. Goodharta, Anil K Kashyapb, Dimitrios P. Tsomocosc and Alexandros P. Vardoulakisd

Abstract

In this companion paper to Goodhart et al. (2012), we explore the interactions of various types of financial regulation. We find that regulations that control fire-sale risk are critical for delivering financial stability and improving the welfare of savers and borrowers. We describe the combinations of capital regulations, margin requirements, liquidity regulation, and dynamic provisioning that are most effective in this respect. A policy featuring margin requirements together with countercyclical capital requirements delivers equal or better outcomes for the economy than does an unregulated financial system. But it is easy to produce combinations of regulation that look sensible but, when combined, have adverse effects on the economy.

JEL Codes: G38, L51.

 
Full article (PDF, 35 pages 286 kb)

Discussion by Paul M.W. Tucker

Discussion by Tobias Adrian


aFinancial Markets Group, London School of Economics
bUniversity of Chicago Booth School of Business, Federal Reserve Bank of Chicago, and National Bureau of Economic Research
cSaid Business School and St. Edmund Hall, University of Oxford
dEuropean Central Bank and Banque de France