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Market Failures and Regulatory Failures: Lessons from Past and Present Financial Crises

dc.contributor.authorViral V. Acharya
dc.contributor.authorThomas Cooley
dc.contributor.authorMatthew Richardson
dc.contributor.authorIngo Walter
dc.date.accessioned2015-04-10T10:17:06Z
dc.date.available2015-04-10T10:17:06Z
dc.date.issued2011-02-15
dc.identifier.urihttp://hdl.handle.net/11540/3852
dc.description.abstractThe paper analyzes the financial crisis of through the lens of market failures and regulatory failures. We present a case that there were four primary failures contributing to the crisis: excessive risk-taking in the financial sector due to mispriced government guarantees; regulatory focus on individual institution risk rather than systemic risk; opacity of positions in financial derivatives that produced externalities from individual firm failures; and runs on the unregulated banking sector that eventually threatened to bring down the entire financial sector. In emphasizing the role of regulatory failures, we provide a description of regulatory evolution in response to the panic of 1907 and the Great Depression, why the regulation put in place then was successful in addressing market failures, but how, over time, especially around the resolutions of Continental Illinois, Savings and Loans crisis and Long-Term Capital Management, expectations of too-big-to-fail status got anchored. We propose specific reforms to address the four market and regulatory failures we identify, and we conclude with some lessons for emerging markets.
dc.languageEnglish
dc.publisherAsian Development Bank
dc.rightsCC BY 3.0 IGO
dc.rights.urihttp://creativecommons.org/licenses/by/3.0/igo
dc.titleMarket Failures and Regulatory Failures: Lessons from Past and Present Financial Crises
dc.typeWorking Papers
dc.subject.expertEconomic Crisis
dc.subject.expertEconomic Efficiency
dc.subject.expertEconomic Policies
dc.subject.expertRegional Economic Development
dc.subject.expertJob Evaluation
dc.subject.expertEvaluation
dc.subject.adbCrisis
dc.subject.adbUnemployment
dc.subject.adbEconomic cooperation
dc.subject.adbGross domestic product
dc.subject.adbEmployment
dc.subject.adbEconomic forecast
dc.subject.naturalFinancial crisis
dc.subject.naturalLabor economics
dc.subject.naturalRegional economics
dc.subject.naturalTurnover
dc.subject.naturalEconomic survey
dc.subject.naturalJob analysis
dc.subject.naturalLabor turnover
dc.title.seriesADBI Working Paper Series
dc.title.volume264
dc.contributor.imprintAsian Development Bank
oar.themeEconomics
oar.themeEvaluation
oar.themeLabor Migration
oar.adminregionAsia and the Pacific Region
oar.countryBangladesh
oar.countryBhutan
oar.countryIndia
oar.countryMaldives
oar.countryNepal
oar.countrySri Lanka
oar.countryBrunei Darussalam
oar.countryCambodia
oar.countryIndonesia
oar.countryLao People's Democratic
oar.countryMalaysia
oar.countryMyanmar
oar.countryPhilippines
oar.countrySingapore
oar.countryThailand
oar.countryViet Nam
oar.countryCook Islands
oar.countryFiji Islands
oar.countryKiribati
oar.countryMarshall Islands
oar.countryFederated States of Micronesia
oar.countryNauru
oar.countryPalau
oar.countryPapua New Guinea
oar.countrySamoa
oar.countrySolomon Islands
oar.countryTimor-Leste
oar.countryTonga
oar.countryTuvalu
oar.countryVanuatu
oar.countryAfghanistan
oar.countryArmenia
oar.countryAzerbaijan
oar.countryGeorgia
oar.countryKazakhstan
oar.countryKyrgyz Republic
oar.countryPakistan
oar.countryTajikistan
oar.countryTurkmenistan
oar.countryUzbekistan
oar.countryPeople's Republic of China
oar.countryHong Kong
oar.countryChina
oar.countryRepublic of Korea
oar.countryMongolia
oar.countryTaipei,China
oar.identifierOAR-004125
oar.authorAcharya, Viral V.
oar.authorCooley, Thomas
oar.authorRichardson, Matthew
oar.authorWalter, Ingo
oar.importtrue
oar.googlescholar.linkpresenttrue


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    The Asian Development Bank Institute (ADBI) Working Paper series is a continuation of the formerly named Discussion Paper series which began in January 2003. The numbering of the papers continued without interruption or change. ADBI was established in 1997 in Tokyo, Japan, to help build capacity, skills, and knowledge related to poverty reduction and other areas that support long-term growth and competitiveness in developing economies in Asia and the Pacific.

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