Question

Briefly but completely explain how the potential for systemic risk underlies many of the aspects of bank regulation. Your answer should include examples of how safety and soundness regulation is implemented that seek to limit the scope of systemic risk.

Answer 1

The great financial crisis revealed vulnerabilities of the regulated banking system capital structure, liquidity reserves and resolution regimes. This given rise to an unprecedented expansion and tightening of regulatory rules that include a massive increase in minimum capital ratios, mandatory minimum leverage ratios, new compulsory liquidity ratios and new resolutions regimes. The new rules have unintended consequences, however, including tighter bank leading conditions and more regulatory arbitrage.

Example: bankig and currency crices and systematic risk , George Kaufman ( world bank ). Internet acvieve.