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BALANCING THE BANKS
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BALANCING THE BANKS
Global Lessons from the Financial Crisis
MATHIAS DEWATRIPONT, JEAN-CHARLES ROCHET, AND JEAN TIROLE Translated by Keith Tribe
Princeton University Press Princeton and Oxford
Copyright © 2010 by Princeton University Press Published by Princeton University Press, 41 William Street, Princeton, New Jersey 08540 In the United Kingdom: Princeton University Press, 6 Oxford Street, Woodstock, Oxfordshire OX20 1TW press.princeton.edu All Rights Reserved Library of Congress Cataloging-in-Publication Data Dewatripont, M. (Mathias) Balancing the banks : global lessons from the financial crisis / Mathias Dewatripont, Jean-Charles Rochet, and Jean Tirole ; translated by Keith Tribe. p. cm. Includes bibliographical references and index. ISBN 978-0-691-14523-5 (hbk. : alk. paper) 1. Banks and banking— Government policy. 2. Banks and banking—State supervision. 3. Global Financial Crisis, 2008–2009. 4. Financial crises—History—21st century. I. Rochet, Jean-Charles. II. Tirole, Jean. III. Tribe, Keith. IV. Title. HG1573.D49 2010 332.1—dc22 2009052389 British Library Cataloging-in-Publication Data is available This book has been composed in Sabon Printed on acid-free paper. ∞ Printed in the United States of America 10 9 8 7 6 5 4 3 2 1
Contents
Acknowledgments chapter 1 Introduction—Mathias Dewatripont, Jean-Charles Rochet, and Jean Tirole
Regulation in a Historical Perspective To Regulate or Not to Regulate? The Challenges Facing Prudential Regulation Building an Adaptive Regulatory System in a Global World Keeping a Balance
vii
1
1 3 6 7 8
chapter 2 Lessons from the Crisis—Jean Tirole
Part I: What Happened? Part II: How Should the Financial System Be Reformed?
10
11 47
chapter 3 The Future of Banking Regulation— Jean-Charles Rochet
The Basel Accords The Breakdown of the Basel Prudential Regime The Necessary Reforms
78
78 86 100
chapter 4 The Treatment of Distressed Banks— Mathias Dewatripont
This page intentionally left blank
BALANCING THE BANKS
Global Lessons from the Financial Crisis
MATHIAS DEWATRIPONT, JEAN-CHARLES ROCHET, AND JEAN TIROLE Translated by Keith Tribe
Princeton University Press Princeton and Oxford
Copyright © 2010 by Princeton University Press Published by Princeton University Press, 41 William Street, Princeton, New Jersey 08540 In the United Kingdom: Princeton University Press, 6 Oxford Street, Woodstock, Oxfordshire OX20 1TW press.princeton.edu All Rights Reserved Library of Congress Cataloging-in-Publication Data Dewatripont, M. (Mathias) Balancing the banks : global lessons from the financial crisis / Mathias Dewatripont, Jean-Charles Rochet, and Jean Tirole ; translated by Keith Tribe. p. cm. Includes bibliographical references and index. ISBN 978-0-691-14523-5 (hbk. : alk. paper) 1. Banks and banking— Government policy. 2. Banks and banking—State supervision. 3. Global Financial Crisis, 2008–2009. 4. Financial crises—History—21st century. I. Rochet, Jean-Charles. II. Tirole, Jean. III. Tribe, Keith. IV. Title. HG1573.D49 2010 332.1—dc22 2009052389 British Library Cataloging-in-Publication Data is available This book has been composed in Sabon Printed on acid-free paper. ∞ Printed in the United States of America 10 9 8 7 6 5 4 3 2 1
Contents
Acknowledgments chapter 1 Introduction—Mathias Dewatripont, Jean-Charles Rochet, and Jean Tirole
Regulation in a Historical Perspective To Regulate or Not to Regulate? The Challenges Facing Prudential Regulation Building an Adaptive Regulatory System in a Global World Keeping a Balance
vii
1
1 3 6 7 8
chapter 2 Lessons from the Crisis—Jean Tirole
Part I: What Happened? Part II: How Should the Financial System Be Reformed?
10
11 47
chapter 3 The Future of Banking Regulation— Jean-Charles Rochet
The Basel Accords The Breakdown of the Basel Prudential Regime The Necessary Reforms
78
78 86 100
chapter 4 The Treatment of Distressed Banks— Mathias Dewatripont