Difficult issues in financial regulation for financial stability

Ozili, Peterson K (2022): Difficult issues in financial regulation for financial stability. Published in:

Abstract

This article explores some of the difficult issues in financial regulation for financial stability. Noting the lack of prior academic work in the topic, this article presents a discussion of some difficult issues in financial regulation for financial stability. Some of the difficult issues include: the difficulty in breaking too-big-to-fail financial institutions into small insignificant parts; the difficulty in regulating executive compensation in the financial sector without limiting the ability of financial institutions to attract and reward executive talent; the difficulty in instilling strict financial regulation and supervision without limiting the ability of financial institutions to exploit emerging profitable opportunities; the difficulty in ensuring that financial institutions increase lending during a recession or in bad times; the rarity of having a female CEO and Chair in a major financial institution; the difficulty in making central banks independent from the influence of the federal government; the difficulty in making financial institutions become relevant in the ever-changing digital technology environment; and the difficulty in preventing financial institutions from taking excessive risks when strict regulations are loosened under a light-touch regulatory regime. The implication of the findings is that financial regulation for financial stability is not an easy task. There will be issues that financial regulation can address, and there will be issues that financial regulation cannot address. Acknowledging that such difficulties exist on the path to financial stability is the first step to addressing these issues.

• Item Type: MPRA Paper
• Language: English
• Keywords: financial regulation, financial stability, bank supervision, crisis, central bank, banks, financial institutions, financial innovations, banking and finance.
• Subjects: G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages; G - Financial Economics > G2 - Financial Institutions and Services > G28 - Government Policy and Regulation

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