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Overcoming too-big-to-fail: A Regulatory Framework to Limit Moral Hazard and Free Riding in the Financial Sector. Report on the CEPS-Assonime Task Force on Bank Crisis Resolution, 15 March 2010

Carmassi, Jacopo and Luchetti, Elisabetta and Micossi, Stefano and Gros, Daniel and Lannoo, Karel. (2010) Overcoming too-big-to-fail: A Regulatory Framework to Limit Moral Hazard and Free Riding in the Financial Sector. Report on the CEPS-Assonime Task Force on Bank Crisis Resolution, 15 March 2010. UNSPECIFIED.

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    Abstract

    Following the demise of Lehman Brothers, the debate on regulatory reform has been misled into concluding that large financial institutions must be broken up and their risk-taking activities limited by law, as called for by the 'Volcker rule'. This report of a joint CEPS-Assonime Task Force argues that such actions are by no means necessary, may be hard to implement in practice and could entail large costs in terms of the availability of credit to the economy (e.g. if they reduced the ability of banks to hedge their credit positions). Alternative solutions exist that can achieve a more stable and resilient financial system without renouncing the benefits of multi-purpose financial institutions and innovative finance. These are predicated on effectively curtailing moral hazard and strengthening market discipline on banks' shareholders and managers by raising the cost of the banking charter to fully reflect its benefits for the banks, and restoring the possibility that all or at least most financial institutions could go bust without triggering unmanageable systemic repercussions. The authors outline a comprehensive framework for regulating cross-border banking groups.

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    Item Type: Other
    Subjects for non-EU documents: EU policies and themes > Policies & related activities > economic and financial affairs > financial crisis 2008-on and consequences/reforms
    EU policies and themes > Policies & related activities > economic and financial affairs > Single Market > capital, goods, services, workers
    EU policies and themes > Policies & related activities > regulations/regulatory policies
    Subjects for EU documents: UNSPECIFIED
    EU Series: UNSPECIFIED
    ["eprint_fieldname_eusries" not defined]: UNSPECIFIED
    EU Annual Reports: UNSPECIFIED
    Series: Series > Centre for European Policy Studies (Brussels) > CEPS Task Force Reports
    Depositing User: Phil Wilkin
    Official EU Document: No
    Language: English
    Date Deposited: 04 Aug 2010
    Page Range: p. 104
    Last Modified: 15 Feb 2011 18:33
    URI: http://aei.pitt.edu/id/eprint/14484

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