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The Governance of Financial Regulation: Reform Lessons from the Recent Crisis

Authors


  • James and Merryl Tisch Professor of Economics, Brown University, 64 Waterman Street, Providence RI, 02912, ross_levine@brown.edu. I thank James Barth, John Boyd, Gerard Caprio, Peter Howitt, Randall Kroszner, Glenn Loury, Yona Rubinstein, Andrei Shleifer, Joe Stiglitz, David Weil, and Ivo Welch for helpful conversations and communications. This is an updated version of a paper presented at the BIS's Ninth Annual Conference on ‘The Future of Central Banking under Post-crisis Mandates’ in Lucerne, Switzerland on 24–25, June 2010, which was distributed as BIS Working Paper 329. The arguments in this paper relate closely to some chapters in The Guardians of Finance: Making Regulators Work for Us’ by James Barth, Gerard Caprio, and Ross Levine, which will be published by MIT Press in 2012. Participants at the Bank for International Settlements, the Boston and Chicago Federal Reserve Banks, the IMF, World Bank, George Washington University, Claremont McKenna College, and Brown University provided insightful comments. I bear full responsibility for the views expressed in the paper.

Ross Levine

Brown University

64 Waterman Street

Providence, RI 02912

USA

ross_levine@brown.edu

Abstract

There was a systemic failure of financial regulation: Senior policymakers repeatedly enacted and implemented policies that destabilized the global financial system, and the authorities maintained these policies even as they learned about the deleterious consequences of their policies during the decade before the crisis. The absence of an informed, expertly staffed, and independent institution that evaluates financial regulation from the public's perspective is a critical defect in the governance of financial regulation – the system associated with selecting, enforcing, and reforming financial policies. I propose a new institution to address this defect.

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