Model Proposal: Default and Financial Regulation

Osorio, Carolina, Kashyap, Anil, Tsomocos, Dimitrios and Goodhart, Charles (2010) Model Proposal: Default and Financial Regulation. Saïd Business School.

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This paper assesses the choice of different regulatory policy instruments for crisis management and prevention. We show that Capital and Liquidity Requirements (as Basel III proposes) are not sufficient to ensure Financial Stability. Three different tools are required to address three different inefficiencies. Capital requirements mitigate 'structural' default frictions; liquidity requirements contain the contagious effects of small shocks by stemming the collapse of collateral and asset prices;
and margin requirements protect against excessive leverage and securitization.

Item Type: Other Working Paper
Keywords: general equilibrium, securitization, financial fragility, monetary policy, regulation, finance
Subject(s): Finance
Date Deposited: 16 Dec 2010 09:34
Last Modified: 19 Sep 2018 09:20
Funders: N/A

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