Financial Regulation and Systemic Risk

Abstract

This chapter provides a conceptual framework for the regulation and supervision of financial services in a domestic, one-country environment. The financial industry plays a fundamental economic role in modern societies, by funding the real economy, matching savers with investors, and providing a system of payments. However, financial service providers may be systemically important actors, whose activities can endanger not only their shareholders, but also the rest of the economy. Financial regulation plays a fundamental role by forcing financial actors to internalize the negative externalities they produce.KeywordsFinancial RegulationFinancial SupervisionSystemically Important Financial InstitutionSIFIMacroeconomic RegulationSystemic risk