Show Summary Details

Page of

PRINTED FROM OXFORD HANDBOOKS ONLINE ( © Oxford University Press, 2018. All Rights Reserved. Under the terms of the licence agreement, an individual user may print out a PDF of a single chapter of a title in Oxford Handbooks Online for personal use (for details see Privacy Policy and Legal Notice).

date: 26 May 2019

Abstract and Keywords

Regulation of financial institutions to avoid the worst effects of financial crises has become a major topic of research and a focus of regulators’ efforts. Policies designed to reduce crises’ effects on real GDP and employment are called macroprudential. Moral hazard has been introduced by deposit insurance and bailouts of banks and large financial institutions. Too little is known to premise macroprudential regulation on externalities. That said, higher capital at banks and other institutions counteracts one effect of deposit insurance and would make the financial system more resilient. Living wills are likely not to be time-consistent. Regulators will not have an incentive to use them in a financial crisis. Instead, they will bail out firms to avoid adverse effects on the economy. Institutions determining regulators’ choices in a crisis need to be designed to make it equilibrium behavior for regulators to let financial firms fail.

Keywords: macroprudential regulation, banking crisis, financial crisis, bank capital, living will, time inconsistency

Access to the complete content on Oxford Handbooks Online requires a subscription or purchase. Public users are able to search the site and view the abstracts and keywords for each book and chapter without a subscription.

Please subscribe or login to access full text content.

If you have purchased a print title that contains an access token, please see the token for information about how to register your code.

For questions on access or troubleshooting, please check our FAQs, and if you can''t find the answer there, please contact us.