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Why Some Firms Thrive While Others FailGovernance and Management Lessons from the Crisis$
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Thomas H. Stanton

Print publication date: 2012

Print ISBN-13: 9780199915996

Published to Oxford Scholarship Online: September 2012

DOI: 10.1093/acprof:oso/9780199915996.001.0001

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Supervision and Regulation of Financial Firms

Supervision and Regulation of Financial Firms

(p.143) 7 Supervision and Regulation of Financial Firms
Why Some Firms Thrive While Others Fail

Thomas H. Stanton

Oxford University Press

Chapter 7 looks at organization and management of financial supervisors. The Gramm-Leach-Bliley Act of 1999 reflected deregulatory sentiment and left serious gaps in the regulatory system. The apparently benevolent period of the early 2000s, when it did not seem easily possible for financial institutions to make serious mistakes, lulled not only financial firms and rating agencies, but also policy makers and supervisors into complacency. Supervisors were reluctant to bring enforcement actions against firms that appeared to be so profitable. Supervisors often were unable or unwilling to set limits when firms engaged in regulatory arbitrage, especially to avoid capital requirements. Informal prodding was the approach of choice for supervisors who feared that a supervised firm might move to another supervisor that seemed more congenial. If a supervised firm left to another regulator, the agency losing jurisdiction over the firm would lose budget resources. Interagency cooperation to set limits on risky practices was difficult and meant that interagency guidance often was weak and late.

Keywords:   financial supervision, regulatory arbitrage, Gramm-Leach-Bliley Act, capital requirements, interagency guidance, risky practices, enforcement, guidance

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