On May 8th, Abderrahim Taamouti (Liverpool University Management School) presents at ISEG the study "Incentive-Based Policies to Regulate Systemic Risk“.
Free admission.
Abstract:
Current banking policies, such as the Basel III reforms, lie in the distortion caused by the widespread use of prudential regulations that operate independently of any incentive-based regulatory policies. Many of these existing regulations, designed to gradually reinforce regulatory capital buffers for financial intermediaries, are discretionary and ad-hoc responses to extreme financial conditions. They lack a mechanism for involving financial institution-specific marginal risk and compliance cost. This paper introduces several incentive-based regulatory policies that can speak to the goals and methods of financial stability policies. Theoretically, we provide conditions under which our regulatory policies are cost-effective and cost-efficient. Empirically, using a sample of 82 US financial institutions, we find that real data is supporting the cost-effectiveness and cost-efficiency of our framework to regulating systemic risk.