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C.W.
Miguel Santana, miguel_santana@me.com
Abstract
This paper summarizes the CEPR Policy Insight No. 27, December 2008, Crisis
management in the European Union, authored by Sylvester C. W. Eijffinger. First, we describe
Eijffingers vision of recent developments, in what concerns both the agents actions and the
regulators reactions. Then, we sum up his policy recommendations and divide them into two
types: particular commands and general rules. Finally, we briefly conclude with a highlight of
his main ideas and hopes for the future.
1. Introduction
The goal of this paper is to summarize the Center for Economic Policy Researchs
Policy Insight No. 27, December 2008, Crisis management in the European Union, authored
by Sylvester C. W. Eijffinger. Published about three months after the collapse of Lehman
Brothers, it intends to provide some regulatory insight for a better handling of financial crises
such as the one witnessed at that moment.
In section 2, we describe Eijffingers vision of recent developments, in what concerns
both the agents actions and the regulators reactions. In section 3, we sum up his policy
recommendations and divide them into two types: particular commands and general rules.
Section 4 briefly concludes, highlighting the special role played by the latter regulatory
category.
Section 5, albeit on the benchmarks that are to pervade new supervision, has a first one,
sustainability, that being about the long-run, also asks for proper incentives to foster that
horizon.
As for specific commands, these can be found mainly in lesson 2 of Section 4. Here,
after claiming that the risk management models based on Basel II have proven to be inadequate,
Eijffinger emphasizes the need to incorporate, on one hand, aspects of the return distribution
other than mean-variance analysis and, on the other, uncertainty and not only risk (Federal
Reserve of St. Louis 2002). Besides, he posits more specific regulations such as stricter capital
and liquidity requirements. In lesson 3, he also talks about enforcing tighter punishments on
lack of transparency on risk.
Finally, in section 5, the last two benchmarks ask for specific commands: integrity is,
in the paper, connected with tighter obligations for banks and rating agencies in what concerns
information on complicated products, and transparency, the author claims, depends on further
standardisation and clarity of the data on financial institutions that is provided to market agents.
4. Conclusion
The broad idea that pervades Eijffingers paper is that of incentive mechanisms design.
Indeed, the following remark is very telling: () these methods of regulation may alleviate
the problem that bankers and traders are always one step ahead of regulators. By creating the
proper incentives, activist regulation may not be as necessary anymore and liberalisation can
do its much needed work (Eijffinger 2008, p. 4) Therefore, more than directly influencing
agents decisions through commands, we see that the author wishes to accomplish his aims
with appropriate incentives, thereby creating a self-sustaining regulatory apparatus.
Bibliography:
Eijffinger, C., W. Sylvester (2008): Crisis management in the European Union, Center for
Economic Policy Researchs Policy Insight No. 27, December 2008.
Federal Reserve of St Louis (2002): The Stock Market: Risk Versus Uncertainty,
https://www.stlouisfed.org/publications/inside-the-vault/fall-2002/the-stock-market-risk-vsuncertainty (last visited 05.10.2016).
Keller,
Peter
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and
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Derby,