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The Economists' Voice 2.0The Financial Crisis, Health Care Reform, and More$
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Joseph Stiglitz and Aaron Edlin

Print publication date: 2014

Print ISBN-13: 9780231160155

Published to Columbia Scholarship Online: November 2015

DOI: 10.7312/columbia/9780231160155.001.0001

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PRINTED FROM COLUMBIA SCHOLARSHIP ONLINE (www.columbia.universitypressscholarship.com). (c) Copyright University of Minnesota Press, 2022. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in CUPSO for personal use.date: 20 May 2022

Investment Banking Regulation After Bear Stearns

Investment Banking Regulation After Bear Stearns

(p.130) Chapter 16 Investment Banking Regulation After Bear Stearns
The Economists' Voice 2.0

Dwight M. Jaffee

Mark Perlow

Columbia University Press

This chapter discusses regulation following the collapse of Bear Stearns and the bailout orchestrated by the Federal Reserve. While there is no doubt that the Federal Reserve will be better prepared to deal with the next crisis, neither the Federal Reserve, nor the Treasury, nor the U.S. Securities and Exchange Commission has offered any proposals to re-regulate the investment banks to minimize the likelihood of a future crisis. The chapter proposes a regulatory mechanism modeled on the banking regulations that already protect the payment system. This system will: (1) minimize the need for a Federal Reserve bailout in a future investment bank crisis; (2) effectively maximize the role of market discipline in controlling investment bank risk management; and (3) maintain the overall efficiency of the U.S. capital markets. It begins by explaining the conditions that led to the Federal Reserve’s bailout of Bear Stearns, since an accurate understanding of these conditions is essential to creating a new regulatory framework that would render future interventions highly unlikely.

Keywords:   financial regulation, investment regulation, banking regulation, Bear Stearns, bail out, investment banks, Federal Reserve, bailout

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