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A CASE FOR BANKING OVERSIGHT REFORM IN CRISIS MITIGATION

A CASE FOR BANKING OVERSIGHT REFORM IN CRISIS MITIGATION This paper reviews the key weaknesses in the banking system related to the 2007 global financial crisis and finds supervisory oversight and accountability underrepresented or missing in recommended solutions although they are a critical contributor to the problem. The paper purports: (1) focusing on the fundamental factors that attribute to the vulnerability of the banking system is a key component of a model for the mitigation of a financial crisis and; (2) the factors are interrelated; therefore, the model should be holistic. The analysis results in an integrative blueprint and includes a simple case study application. The findings of the application support the concept of “regulatory capture”, since regulators could and should have been able to identify problem institutions before the crisis and yet did not intervene. The application also showed how government bailout, as a strategy, could be successful in restoring a failing institution. The missing link in being able to mitigate a crisis is having effective oversight. Fortunately, the environment is more conducive for such reform, in the wake of crises. JEL Codes: G01, G28 Keywords: financial crisis, systematic risk, mitigation, accountability, reform http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Economics, Management, and Financial Markets Addleton Academic Publishers

A CASE FOR BANKING OVERSIGHT REFORM IN CRISIS MITIGATION

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Publisher
Addleton Academic Publishers
Copyright
© 2009 Addleton Academic Publishers
ISSN
1842-3191
eISSN
1938-212X
Publisher site
See Article on Publisher Site

Abstract

This paper reviews the key weaknesses in the banking system related to the 2007 global financial crisis and finds supervisory oversight and accountability underrepresented or missing in recommended solutions although they are a critical contributor to the problem. The paper purports: (1) focusing on the fundamental factors that attribute to the vulnerability of the banking system is a key component of a model for the mitigation of a financial crisis and; (2) the factors are interrelated; therefore, the model should be holistic. The analysis results in an integrative blueprint and includes a simple case study application. The findings of the application support the concept of “regulatory capture”, since regulators could and should have been able to identify problem institutions before the crisis and yet did not intervene. The application also showed how government bailout, as a strategy, could be successful in restoring a failing institution. The missing link in being able to mitigate a crisis is having effective oversight. Fortunately, the environment is more conducive for such reform, in the wake of crises. JEL Codes: G01, G28 Keywords: financial crisis, systematic risk, mitigation, accountability, reform

Journal

Economics, Management, and Financial MarketsAddleton Academic Publishers

Published: Jan 1, 2013

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