No. 796 - The four ages of banking regulation: What to do today?

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by Riccardo De Bonis and Maurizio TrapaneseSeptember 2023

This paper illustrates the four ages into which the evolution of banking regulation from the 19th century to today can be divided. The emphasis is on the banking deregulation and on the regulatory response to the 2007-09 financial crisis, in particular, on the Basel Accords on capital requirements. The work explains how some jurisdictions, like the US, in recent years have introduced deviations from the international standards, in particular those established by the Financial Stability Board. It is to these elements that the causes of the crises of some American regional banks in 2023 can be traced.

For the future, the paper draws the attention to the opportunity for the authorities to resist the pressures to deregulate the system, introducing possible corrective measures suggested by the recent crises. The importance of proceeding to reduce regulatory complexity, while pursuing the right balance between regulatory proportionality and financial stability is underlined. Prudential authorities would increase their capacity to deal with unexpected events and intermediaries would reduce compliance costs and incentives to bring risks outside the regulatory perimeter.

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