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Progress and ConfusionThe State of Macroeconomic Policy$
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Olivier Blanchard, Raghuram G. Rajan, Kenneth S. Rogoff, and Lawrence H. Summers

Print publication date: 2016

Print ISBN-13: 9780262034623

Published to MIT Press Scholarship Online: January 2017

DOI: 10.7551/mitpress/9780262034623.001.0001

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PRINTED FROM MIT PRESS SCHOLARSHIP ONLINE (www.mitpress.universitypressscholarship.com). (c) Copyright The MIT Press, 2021. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in MITSO for personal use.date: 23 September 2021

Rethinking Financial Regulation: How Confusion Has Prevented Progress

Rethinking Financial Regulation: How Confusion Has Prevented Progress

(p.61) 6 Rethinking Financial Regulation: How Confusion Has Prevented Progress
Progress and Confusion

Anat R. Admati

The MIT Press

This chapter argues that there has been little progress since the global financial crisis in making the financial system safer and healthier. Conflicts of interest between creditors and shareholders result in excessive leverage; the latter is particularly acute in banking because of implicit debt guarantees and the expectation of support from central banks and governments. The chapter calls for much higher, non-risk weighted minimum capital ratios (in the order of 15 percent of banks’ total assets) than those currently in place.

Keywords:   financial regulation, excessive leverage, ratchet effect, minimum capital ratios, Basel III

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