Systemic Risk: Changing the Regulatory Perspective

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Output type: Journal article

Author list: Rochet JC

Publication year: 2010

Volume number: 6

Issue number: 4

Start page: 259

End page: 276

Number of pages: 18

ISSN: 1815-4654

Languages: English-Great Britain (EN-GB)

Abstract

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 institution-based) regulatory perspective on systemic risk and encouraging a generalized move to central counterparty clearing.

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