An Integrated Framework for Analyzing Multiple Financial Regulations
by Charles A. E. Goodharta, Anil K Kashyapb, Dimitrios P. Tsomocosc and Alexandros P. Vardoulakisd
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.
(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