Skip to main content
Top

2020 | OriginalPaper | Chapter

6. How Can Supervision Prevent Financial Crises?

Activate our intelligent search to find suitable subject content or patents.

search-config
loading …

Abstract

Supervision cannot prevent market disturbances, potentially causing a crisis. It retains its impact through long-term measures making the banking system more resilient to externals shocks. This process consists of five steps: setting standards, licencing, oversight, rectifying action and firefighting. The supervision is the application of those five steps in a coordinated manner. Performed in the correct order, they enable banks to withstand shocks without causing them. However, the regulatory requirement should be so balanced that investment in bank shares remains attractive. Otherwise, banks cannot raise the capital and meet the requirements.

Dont have a licence yet? Then find out more about our products and how to get one now:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

  • über 102.000 Bücher
  • über 537 Zeitschriften

aus folgenden Fachgebieten:

  • Automobil + Motoren
  • Bauwesen + Immobilien
  • Business IT + Informatik
  • Elektrotechnik + Elektronik
  • Energie + Nachhaltigkeit
  • Finance + Banking
  • Management + Führung
  • Marketing + Vertrieb
  • Maschinenbau + Werkstoffe
  • Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

  • über 67.000 Bücher
  • über 340 Zeitschriften

aus folgenden Fachgebieten:

  • Bauwesen + Immobilien
  • Business IT + Informatik
  • Finance + Banking
  • Management + Führung
  • Marketing + Vertrieb
  • Versicherung + Risiko




Jetzt Wissensvorsprung sichern!

Footnotes
1
“…predicting important discrete events may be a form of charlatanism. In perhaps 99 out of 100 cases, we are likely to be wrong.” (Milanović, 2016).
 
2
eToro (2019).
 
3
Posen (2006).
 
4
The dynamic of the market would usually follow two laws declared by King (2017, p. 34):
“First law of financial crises: an unsustainable position can continue for far longer than you would believe possible.”
“Second law of financial crises: when an unsustainable position ends it happens faster than you could imagine.”.
 
5
See glossary—Bubble.
 
6
“The LCTM risk model told them that the loss they incurred on one day at the end of August 1998 should have occurred once every 80 trillion years. It happened again the following week.” (Engler & Essinger, 2000, p. 127).
 
7
Glossary—Risk weights.
 
8
Glossary—Concentration risk.
 
9
Glossary: The resilience of the alternative regulatory structure.
 
10
Standardised approach.
 
11
“There is no legitimate reason for the proposed Basel III requirements to be so outrageously low. These requirements reflect the political impact that the banks have had on the policy debate” (Admati & Hellwig, 2014, p. 179).
 
Literature
go back to reference Admati, A., & Hellwig, M. (2014). The bankers’ new clothes, Princeton University Press. Admati, A., & Hellwig, M. (2014). The bankers’ new clothes, Princeton University Press.
go back to reference Engler, H., & Essinger, J. (2000). The future of banking, Reuters Limited. Engler, H., & Essinger, J. (2000). The future of banking, Reuters Limited.
go back to reference King, M. (2017). The end of alchemy: Money, banking and the future of the global economy, W W Norton & Company. ISBN 0393353575. King, M. (2017). The end of alchemy: Money, banking and the future of the global economy, W W Norton & Company. ISBN 0393353575.
go back to reference Milanović, B. (2016). Global inequality, Belknap Press, An Imprint of Harvard University Press. ISBN 978-0674984035. Milanović, B. (2016). Global inequality, Belknap Press, An Imprint of Harvard University Press. ISBN 978-0674984035.
go back to reference Posen, A. S. (2006, March). Why Central Banks should not burst bubbles. International Finance, 109–124. Posen, A. S. (2006, March). Why Central Banks should not burst bubbles. International Finance, 109–124.
Metadata
Title
How Can Supervision Prevent Financial Crises?
Author
Damir Odak
Copyright Year
2020
DOI
https://doi.org/10.1007/978-3-030-48547-4_6