Arbeitspapier

Illiquidity, Insolvency, and Banking Regulation

This paper provides a compact framework for banking regulation analysis in the presence of uncertainty between systemic liquidity and solvency shocks. It explains the asset price anomalies and bank lending freeze during the crisis. The paper shows how the coexistence of illiquidity and insolvency problems adds extra cost for banking regulation, making conventional regulatory policies fail, and why the unconventional central bank policy encourages moral hazard. A banking tax is proposed to cover the extra regulatory cost, and the regulatory cost can also be reduced by combining the advantages of several instruments.

ISBN
978-82-7553-623-3
Language
Englisch

Bibliographic citation
Series: Working Paper ; No. 2011/13

Classification
Wirtschaft
Banks; Depository Institutions; Micro Finance Institutions; Mortgages
Financial Institutions and Services: Government Policy and Regulation
Subject
liquidity risk
insolvency risk
liquidity regulation
equity requirement
banking tax

Event
Geistige Schöpfung
(who)
Cao, Jin
Event
Veröffentlichung
(who)
Norges Bank
(where)
Oslo
(when)
2011

Handle
Last update
10.03.2025, 11:44 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Cao, Jin
  • Norges Bank

Time of origin

  • 2011

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