Safety in Numbers
Safety in Numbers
This chapter suggests the ways in which financial risk regulators should respond when an unexpected turn in the financial market yields results different from their analysis. Financial risk regulation aims to measure market risks with more objectivity and stability. When the market becomes unstable, regulators invent new measures to lessen its risks. However, their new plans sometimes worsen the problem in the market; causing them to invent another plan. Regulators, who have the power to monitor credit markets and adjust policy accordingly, should aim instead to dampen large fluctuations and implement restraints on duration mismatch and leverage, since this would automatically assure some contingent reserves and aggregate credit growth.
Keywords: financial risk regulators, market risks, fluctuations, credit growth, duration mismatch
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