FINANCIAL MARKETS PRUDENTIAL REGULATION AS A DYNAMIC SELF-CORRECTIVE PROCESS
FINANCIAL MARKETS PRUDENTIAL REGULATION AS A DYNAMIC SELF-CORRECTIVE PROCESS

Author(s): Josef Mládek
Subject(s): Economy, Financial Markets
Published by: ASERS Publishing
Keywords: financial markets; financial crisis; regulation
Summary/Abstract: The recent financial crisis has reminded us (again) that the so-called great moderation of macro￾financial cycle was merely a mirage. It is therefore now more than ever appropriate to study the issues of economic and financial cycle and their interconnections. In this vein of research, risk-based prudential regulation of financial markets is of center importance. This chapter is therefore structured as follows. First, it highlights some specific features of prudential regulation in the financial markets. It looks at a different nature of the regulated risk in financial markets compared with other sectors of the economy and the consequences thereof for the robustness of the regulation. Related to that, effort of the regulated entities to optimize the impact of regulation on them is investigated. Finally, lessons learned are applied to shed some more light on the prospects of regulatory reform in order to achieve more viable and robust risk regulation of financial markets.

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