Financial Regulation

The 2007 to 2009 financial crisis resulted in the re-emergence of the debate on financial regulation and its relationships with other macroeconomic policies, particularly monetary policy. In Europe, the financial crisis was followed by the sovereign debt crisis, as the bail-out of the financial sector put strains on public finances in several countries. The sequence of events called for a strengthening of the union, ranging from a common framework for supervisory policy that could minimize the risk of unforeseen bank or country defaults to a common resolution mechanism that could set equal rules across countries and reduce ex-ante mis-incentives to risk-taking and moral hazard. This analysis of the state of and prospects for financial regulation examines the lending and saving behavior of banks and households as well as their borrowing activities in order to understand the conflicting priorities and complicated decisions involved in the development and implementation of financial legislation.Part I. Micro- and Macroprudential Regulation: 1. The road from micro-prudential to macro-prudential regulation Ester Faia and Isabel Schnabel; 2. Lessons from the European financial crisis Marco Pagano; 3. Bank stress tests as a policy tool: the European experience during the crisis Athanasios Orphanides; 4. Monetary policy in a Banking Union Frank Smets and Tobias Linzert; 5. Competition and state aid rules in the time of Banking Union Ignazio Angeloni and Niall Lenihan; 6. Bail-in clauses Jan Pieter Krahnen and Laura Moretti; 7. Shadow resolutions as a no-no in a Sound Banking Union Gerard Hertig and Luca Enriques; 8. A political economy perspective on common supervision in the Eurozone Tobias Troger; Part II. Investor and Borrower Protection: 9. Keeping households out of financial trouble Michael Haliassos; 10. Financial market governance and consumer protection in the EU Niamh Moloney; 11. Financial advice Andreas Hackethal; 12. Regulation of financial institutions in the United States Howell Jackson; 13. Risk aversion and financial crisis Luigi Guiso; 14. Household finance and the law - a case study on economic transplants Katja Langenbucher.