Description
This book seeks to bridge the gap between what is well known in economic research but has become long forgotten in practise. Focusing on the recent banking crisis, Cao looks at why the existing regulatory regime failed to prevent the financial meltdown, and emphasizes the impact of regulatory policies on the risky activities undertaken by individual financial institutions. The systemic risks in the financial system that need to be avoided by the regulatory rules are examined in detail, and Cao establishes a framework of evaluating the instruments in the regulatora (TM)s toolbox. The author covers a range of important issues such as endogenous systemic liquidity risk, the failure of liquidity regulation with Lender of Last Resort policy or capital requirement and the impact of macro policy on micro incentives.
