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Towards Human DevelopmentNew Approaches to Macroeconomics and Inequality$
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Giovanni Andrea Cornia and Frances Stewart

Print publication date: 2014

Print ISBN-13: 9780198706083

Published to Oxford Scholarship Online: May 2014

DOI: 10.1093/acprof:oso/9780198706083.001.0001

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Helping Control Boom–Bust in Finance through Countercyclical Regulation*

Helping Control Boom–Bust in Finance through Countercyclical Regulation*

(p.269) 13 Helping Control Boom–Bust in Finance through Countercyclical Regulation*
Towards Human Development

Stephany Griffith-Jones

José Antonio Ocampo

Oxford University Press

The North Atlantic financial crisis shows that procyclical behaviour is inherent to financial markets. Regulation reform needs to be comprehensive, to avoid regulatory arbitrage, and countercyclical, to manage the effects of boom–bust cycles. Policymakers now agree on implementing countercyclical regulation for financial regulation reform to improve capital, provisions, and liquidity requirements. The chapter discusses different instruments that can be used in parallel. Measures taken in the context of Basle III are also analysed. Arguments in favour of implementing countercyclical regulation through rules, rather than discretion, as well as the trade-offs between stronger regulation and access to credit are highlighted.

Keywords:   countercyclical financial regulation, global financial crisis, Basle III, crisis prevention, banks’ provisions

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