Handbook of Safeguarding Global Financial Stability

Chapter 43

Role and Scope of Regulation and Supervision

D.T. Llewellyn*,^†,‡

^*Loughborough University, Loughborough, Leics, UK

^†CASS Business School, London, UK

^‡Vienna University of Economics and Business, Vienna, Austria

Outline

Key Issues

Opening Perspective

Rationale of Regulation and Supervision

Costs of Instability

Objectives of Regulation: Strategic Versus Incremental

Instruments in a Regulatory Regime

Eight Types of Measures

Regulatory Strategy: Two Strategic Approaches

Reducing the Probability of Failures

Structural Regulation

Glass–Steagall Approach

Narrow Banks

Equity Banks

Behavioral Regulation

Connectedness

Intervention

Minimizing the Cost of Bank Failures

Structural Measures

TBTF and the Size Issue

Systemically Important Banks