New Paradigms for Banking Regulation (2012:13epa)


The financial crisis has shattered the confidence of economic agents in the banking system. In order to prevent future crises, the reasons for banks’ excessive risk taking have to be understood. This article explores the driving forces behind the culture of excessive risk taking in the banking industry and questions to what extent the current changes in banking regulation can correct inadequate incentives.

The analysis raises serious concerns regarding the Basel III countercyclical buffer and maintains scepticism regarding the efficiency of changes in corporate governance, levels of information disclosure and market discipline.

The analysis is published in the context of SIEPS´ research project EU and EMU after the economic crisis.

Xavier Freixas is Professor of Economis at Universitat Pompeu Fabra, Barcelona, and Centre for Economic Policy Reform, CEPR.