Financial Regulation and the Speed of Financial Risks
Year: 2017
Type: article
Abstract: This paper argues that the speed of financial risks, rather than the speed of regulators, is the key cause of financial crises. Our argument contradicts a common claim in the literature that financial crises arise because regulators cannot keep up with fast-paced changes in financial markets. We divide financial risks into two main types—fast-moving and slow-moving risks—and argue that most crises have been caused by slow-moving risks that regulators could have mitigated. The global financial crisis, however, showed that the mixing of fast-moving and slow-moving risks also leads to financial instability. This paper thus provides a novel argument for limiting risk-taking, potentially including the separation of financial institutions by the types of risk they manage.
Source: OEconomia
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: diamond
OpenAlex ID: W2761335447