Regulate or tax: how to guarantee banking stability?
04/04/2024
This is THE headache facing financial regulators. How do you prevent banks from taking on too much risk, without discouraging them from lending?
A year ago, the international financial system was in turmoil. In March 2023, four US regional banks, including Silicon Valley Bank, went bankrupt. One of the causes put forward was a relaxation of the rules for medium-sized institutions, with the aim of easing the constraints they faced. Soon after their implementation, the solutions conceived by regulators to reinforce the solidity of American banks are already being criticized.
Questions are being raised about their effectiveness, and in particular about the ever-increasing requirement for banking institutions to hold capital. Is this the only way to regulate bank activity without hindering their contribution to economic growth?
Our work explores the use of other tools.