Incentive Audits : A New Approach to Financial Regulation
A large body of evidence points to misaligned incentives as having a key role in the run-up to the global financial crisis. These include bank managers' incentives to boost short-term profits and create banks that are "too big to fail,&qu...
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
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World Bank, Washington, DC
2013
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| Online Access: | http://documents.worldbank.org/curated/en/2013/01/17155359/incentive-audits-new-approach-financial-regulation http://hdl.handle.net/10986/12199 |
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okr-10986-12199 |
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oai_dc |
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Digital Repository |
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Foreign Institution |
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Digital Repositories |
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World Bank Open Knowledge Repository |
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World Bank |
| language |
English en_US |
| topic |
ACCOUNTABILITY ACCOUNTING ADVANCED ECONOMIES ADVERSE SELECTION ARBITRAGE ASYMMETRIC INFORMATION AUDITING AUDITORS AUDITS AUTONOMY BALANCE SHEET BANK FAILURES BANK FOR INTERNATIONAL SETTLEMENTS BANK HOLDING BANK HOLDING COMPANIES BANK OF ENGLAND BANK REGULATION BANK RISK BANKING CRISES BANKING CRISIS BANKING INSTITUTIONS BANKING REGULATION BANKING SECTOR BANKING SUPERVISION BANKING SYSTEM BANKRUPTCY BANKRUPTCY PROCEDURES BANKS BANQUE DE FRANCE BOOM-BUST CYCLES CAPITAL ACCORD CAPITAL ADEQUACY CAPITAL RATIOS CAPITAL REGULATION CAPITAL REQUIREMENTS CAPITAL STANDARDS CENTRAL BANK CENTRAL BANKING CHECKS CLEARING HOUSES COLLATERAL COLLATERAL POLICIES COMMERCIAL BANK COMMERCIAL BANKS COMPETITION POLICY CONFLICT OF INTEREST CONFLICTS OF INTEREST CONSUMER PROTECTION CONTRACT DESIGN CORPORATE GOVERNANCE CREDIBILITY CREDIT CEILINGS CREDIT DEFAULT CREDIT DEFAULT SWAPS CREDIT ENHANCEMENTS CREDIT EXPANSION CREDIT GROWTH CREDIT RATING CREDIT RATING AGENCIES CREDIT RATINGS CREDIT RISK CREDIT RISK ASSESSMENT CREDIT WORTHINESS DEBT DEBT SERVICE DEBTORS DEFAULTS DEPOSIT DEPOSIT INSURANCE DEPOSIT INSURANCE SCHEMES DERIVATIVES DEVELOPING COUNTRIES DEVELOPING ECONOMIES DISCLOSURE REQUIREMENTS DUE DILIGENCE EMERGING MARKETS EXCHANGE RATE EXCHANGE RATE REGIMES EXPOSURE EXTERNALITIES FEDERAL RESERVE FEDERAL RESERVE BANK FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL DERIVATIVES FINANCIAL DEVELOPMENT FINANCIAL INFORMATION FINANCIAL INNOVATION FINANCIAL INSTITUTION FINANCIAL INSTITUTIONS FINANCIAL MARKETS FINANCIAL POLICIES FINANCIAL PRODUCTS FINANCIAL REFORM FINANCIAL REGULATION FINANCIAL SAFETY NETS FINANCIAL SECTOR FINANCIAL SERVICES FINANCIAL SERVICES INDUSTRY FINANCIAL STABILITY FINANCIAL SYSTEM FINANCIAL SYSTEM STABILITY FINANCIAL SYSTEMS FINANCIAL TRANSACTIONS FISCAL AUTHORITIES FLOW OF CREDIT FOREIGN CURRENCY GLOBAL FINANCIAL STABILITY GLOBAL FINANCIAL SYSTEM GOVERNMENT REGULATION HEDGE FUNDS HOME OWNERSHIP HOUSING INCENTIVE STRUCTURES INCOME INFORMATION ASYMMETRIES INFORMATION DISCLOSURES INSURANCE INSURANCE MARKETS INTEREST RATE INTEREST RATE POLICIES INTEREST RATE SPREADS INTERNAL CONTROLS INTERNATIONAL BANK INTERNATIONAL STANDARDS INVESTING INVESTOR PROTECTION JURISDICTION JURISDICTIONS LACK OF TRANSPARENCY LAWS LEGISLATION LENDER LENDER OF LAST RESORT LIABILITY LIQUIDITY LIQUIDITY RISK LOAN MACROECONOMIC POLICY MANDATES MARK-TO-MARKET MARK-TO-MARKET ACCOUNTING MARKET DISCIPLINE MARKET FAILURE MARKET FAILURES MARKET PARTICIPANTS MARKET STRUCTURE MARKET VALUE MONETARY AUTHORITY MONETARY FUND MONETARY POLICY MORAL HAZARD MORTGAGE MORTGAGE LENDING MORTGAGE MARKET MORTGAGES OPERATIONAL INDEPENDENCE PARTICULAR COUNTRY PAYMENT SYSTEM PAYMENTS SYSTEMS POLICY RESPONSE POLICY RESPONSES PORTFOLIO PRIVATE SECTOR DEVELOPMENT PRUDENTIAL REGULATION PRUDENTIAL REGULATIONS PRUDENTIAL SUPERVISION PUBLIC FUNDS RAPID GROWTH RATING AGENCIES REAL ESTATE REGULATOR REGULATORS REGULATORY AGENCIES REGULATORY AUTHORITIES REGULATORY BODIES REGULATORY CAPITAL REGULATORY FRAMEWORK REGULATORY FRAMEWORKS REGULATORY GOVERNANCE REGULATORY REGIMES REGULATORY SYSTEMS RETURNS RISK ASSESSMENTS RISK CAPITAL RISK CONTROLS RISK EXPOSURES RISK MANAGEMENT RISK MANAGEMENT SYSTEMS RISK MANAGERS RISK MEASUREMENT RISK TAKING RISK WEIGHTS SAFETY NET SECURITIES SHAREHOLDERS SMALL COUNTRIES SOLVENCY SOVEREIGN DEBT SOVEREIGN DEBTS STOCK OPTIONS SUPERVISION OF BANKS SUPERVISORY AUTHORITIES SUPERVISORY AUTHORITY SUPERVISORY FRAMEWORK SUPERVISORY POWERS SYSTEMIC RISK SYSTEMIC RISKS TAX TAX CODE TAX INCENTIVES TAX SYSTEM TRADING TRANSPARENCY TURNOVER UNDERWRITERS VALUATIONS WAGES |
| spellingShingle |
ACCOUNTABILITY ACCOUNTING ADVANCED ECONOMIES ADVERSE SELECTION ARBITRAGE ASYMMETRIC INFORMATION AUDITING AUDITORS AUDITS AUTONOMY BALANCE SHEET BANK FAILURES BANK FOR INTERNATIONAL SETTLEMENTS BANK HOLDING BANK HOLDING COMPANIES BANK OF ENGLAND BANK REGULATION BANK RISK BANKING CRISES BANKING CRISIS BANKING INSTITUTIONS BANKING REGULATION BANKING SECTOR BANKING SUPERVISION BANKING SYSTEM BANKRUPTCY BANKRUPTCY PROCEDURES BANKS BANQUE DE FRANCE BOOM-BUST CYCLES CAPITAL ACCORD CAPITAL ADEQUACY CAPITAL RATIOS CAPITAL REGULATION CAPITAL REQUIREMENTS CAPITAL STANDARDS CENTRAL BANK CENTRAL BANKING CHECKS CLEARING HOUSES COLLATERAL COLLATERAL POLICIES COMMERCIAL BANK COMMERCIAL BANKS COMPETITION POLICY CONFLICT OF INTEREST CONFLICTS OF INTEREST CONSUMER PROTECTION CONTRACT DESIGN CORPORATE GOVERNANCE CREDIBILITY CREDIT CEILINGS CREDIT DEFAULT CREDIT DEFAULT SWAPS CREDIT ENHANCEMENTS CREDIT EXPANSION CREDIT GROWTH CREDIT RATING CREDIT RATING AGENCIES CREDIT RATINGS CREDIT RISK CREDIT RISK ASSESSMENT CREDIT WORTHINESS DEBT DEBT SERVICE DEBTORS DEFAULTS DEPOSIT DEPOSIT INSURANCE DEPOSIT INSURANCE SCHEMES DERIVATIVES DEVELOPING COUNTRIES DEVELOPING ECONOMIES DISCLOSURE REQUIREMENTS DUE DILIGENCE EMERGING MARKETS EXCHANGE RATE EXCHANGE RATE REGIMES EXPOSURE EXTERNALITIES FEDERAL RESERVE FEDERAL RESERVE BANK FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL DERIVATIVES FINANCIAL DEVELOPMENT FINANCIAL INFORMATION FINANCIAL INNOVATION FINANCIAL INSTITUTION FINANCIAL INSTITUTIONS FINANCIAL MARKETS FINANCIAL POLICIES FINANCIAL PRODUCTS FINANCIAL REFORM FINANCIAL REGULATION FINANCIAL SAFETY NETS FINANCIAL SECTOR FINANCIAL SERVICES FINANCIAL SERVICES INDUSTRY FINANCIAL STABILITY FINANCIAL SYSTEM FINANCIAL SYSTEM STABILITY FINANCIAL SYSTEMS FINANCIAL TRANSACTIONS FISCAL AUTHORITIES FLOW OF CREDIT FOREIGN CURRENCY GLOBAL FINANCIAL STABILITY GLOBAL FINANCIAL SYSTEM GOVERNMENT REGULATION HEDGE FUNDS HOME OWNERSHIP HOUSING INCENTIVE STRUCTURES INCOME INFORMATION ASYMMETRIES INFORMATION DISCLOSURES INSURANCE INSURANCE MARKETS INTEREST RATE INTEREST RATE POLICIES INTEREST RATE SPREADS INTERNAL CONTROLS INTERNATIONAL BANK INTERNATIONAL STANDARDS INVESTING INVESTOR PROTECTION JURISDICTION JURISDICTIONS LACK OF TRANSPARENCY LAWS LEGISLATION LENDER LENDER OF LAST RESORT LIABILITY LIQUIDITY LIQUIDITY RISK LOAN MACROECONOMIC POLICY MANDATES MARK-TO-MARKET MARK-TO-MARKET ACCOUNTING MARKET DISCIPLINE MARKET FAILURE MARKET FAILURES MARKET PARTICIPANTS MARKET STRUCTURE MARKET VALUE MONETARY AUTHORITY MONETARY FUND MONETARY POLICY MORAL HAZARD MORTGAGE MORTGAGE LENDING MORTGAGE MARKET MORTGAGES OPERATIONAL INDEPENDENCE PARTICULAR COUNTRY PAYMENT SYSTEM PAYMENTS SYSTEMS POLICY RESPONSE POLICY RESPONSES PORTFOLIO PRIVATE SECTOR DEVELOPMENT PRUDENTIAL REGULATION PRUDENTIAL REGULATIONS PRUDENTIAL SUPERVISION PUBLIC FUNDS RAPID GROWTH RATING AGENCIES REAL ESTATE REGULATOR REGULATORS REGULATORY AGENCIES REGULATORY AUTHORITIES REGULATORY BODIES REGULATORY CAPITAL REGULATORY FRAMEWORK REGULATORY FRAMEWORKS REGULATORY GOVERNANCE REGULATORY REGIMES REGULATORY SYSTEMS RETURNS RISK ASSESSMENTS RISK CAPITAL RISK CONTROLS RISK EXPOSURES RISK MANAGEMENT RISK MANAGEMENT SYSTEMS RISK MANAGERS RISK MEASUREMENT RISK TAKING RISK WEIGHTS SAFETY NET SECURITIES SHAREHOLDERS SMALL COUNTRIES SOLVENCY SOVEREIGN DEBT SOVEREIGN DEBTS STOCK OPTIONS SUPERVISION OF BANKS SUPERVISORY AUTHORITIES SUPERVISORY AUTHORITY SUPERVISORY FRAMEWORK SUPERVISORY POWERS SYSTEMIC RISK SYSTEMIC RISKS TAX TAX CODE TAX INCENTIVES TAX SYSTEM TRADING TRANSPARENCY TURNOVER UNDERWRITERS VALUATIONS WAGES Čihák, Martin Demirgüç-Kunt, Aslı Johnston, R. Barry Incentive Audits : A New Approach to Financial Regulation |
| relation |
Policy Research Working Paper; No. 6308 |
| description |
A large body of evidence points to
misaligned incentives as having a key role in the run-up to
the global financial crisis. These include bank
managers' incentives to boost short-term profits and
create banks that are "too big to fail,"
regulators' incentives to forebear and withhold
information from other regulators in stressful times, and
credit rating agencies' incentives to keep issuing high
ratings for subprime assets. As part of the response to the
crisis, policymakers and regulators also attempted to
address some incentive issues, but various outside observers
have criticized the response for being insufficient. This
paper proposes a pragmatic approach to re-orienting
financial regulation to have at its core the objective of
addressing incentives on an ongoing basis. Specifically, the
paper proposes "incentive audits" as a tool that
could help in identifying incentive misalignments in the
financial sector. The paper illustrates how such audits
could be implemented in practice, and what the implications
would be for the design of policies and frameworks to
mitigate systemic risks. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Čihák, Martin Demirgüç-Kunt, Aslı Johnston, R. Barry |
| author_facet |
Čihák, Martin Demirgüç-Kunt, Aslı Johnston, R. Barry |
| author_sort |
Čihák, Martin |
| title |
Incentive Audits : A New Approach to Financial Regulation |
| title_short |
Incentive Audits : A New Approach to Financial Regulation |
| title_full |
Incentive Audits : A New Approach to Financial Regulation |
| title_fullStr |
Incentive Audits : A New Approach to Financial Regulation |
| title_full_unstemmed |
Incentive Audits : A New Approach to Financial Regulation |
| title_sort |
incentive audits : a new approach to financial regulation |
| publisher |
World Bank, Washington, DC |
| publishDate |
2013 |
| url |
http://documents.worldbank.org/curated/en/2013/01/17155359/incentive-audits-new-approach-financial-regulation http://hdl.handle.net/10986/12199 |
| _version_ |
1764422204630499328 |
| spelling |
okr-10986-121992021-04-23T14:03:06Z Incentive Audits : A New Approach to Financial Regulation Čihák, Martin Demirgüç-Kunt, Aslı Johnston, R. Barry ACCOUNTABILITY ACCOUNTING ADVANCED ECONOMIES ADVERSE SELECTION ARBITRAGE ASYMMETRIC INFORMATION AUDITING AUDITORS AUDITS AUTONOMY BALANCE SHEET BANK FAILURES BANK FOR INTERNATIONAL SETTLEMENTS BANK HOLDING BANK HOLDING COMPANIES BANK OF ENGLAND BANK REGULATION BANK RISK BANKING CRISES BANKING CRISIS BANKING INSTITUTIONS BANKING REGULATION BANKING SECTOR BANKING SUPERVISION BANKING SYSTEM BANKRUPTCY BANKRUPTCY PROCEDURES BANKS BANQUE DE FRANCE BOOM-BUST CYCLES CAPITAL ACCORD CAPITAL ADEQUACY CAPITAL RATIOS CAPITAL REGULATION CAPITAL REQUIREMENTS CAPITAL STANDARDS CENTRAL BANK CENTRAL BANKING CHECKS CLEARING HOUSES COLLATERAL COLLATERAL POLICIES COMMERCIAL BANK COMMERCIAL BANKS COMPETITION POLICY CONFLICT OF INTEREST CONFLICTS OF INTEREST CONSUMER PROTECTION CONTRACT DESIGN CORPORATE GOVERNANCE CREDIBILITY CREDIT CEILINGS CREDIT DEFAULT CREDIT DEFAULT SWAPS CREDIT ENHANCEMENTS CREDIT EXPANSION CREDIT GROWTH CREDIT RATING CREDIT RATING AGENCIES CREDIT RATINGS CREDIT RISK CREDIT RISK ASSESSMENT CREDIT WORTHINESS DEBT DEBT SERVICE DEBTORS DEFAULTS DEPOSIT DEPOSIT INSURANCE DEPOSIT INSURANCE SCHEMES DERIVATIVES DEVELOPING COUNTRIES DEVELOPING ECONOMIES DISCLOSURE REQUIREMENTS DUE DILIGENCE EMERGING MARKETS EXCHANGE RATE EXCHANGE RATE REGIMES EXPOSURE EXTERNALITIES FEDERAL RESERVE FEDERAL RESERVE BANK FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL DERIVATIVES FINANCIAL DEVELOPMENT FINANCIAL INFORMATION FINANCIAL INNOVATION FINANCIAL INSTITUTION FINANCIAL INSTITUTIONS FINANCIAL MARKETS FINANCIAL POLICIES FINANCIAL PRODUCTS FINANCIAL REFORM FINANCIAL REGULATION FINANCIAL SAFETY NETS FINANCIAL SECTOR FINANCIAL SERVICES FINANCIAL SERVICES INDUSTRY FINANCIAL STABILITY FINANCIAL SYSTEM FINANCIAL SYSTEM STABILITY FINANCIAL SYSTEMS FINANCIAL TRANSACTIONS FISCAL AUTHORITIES FLOW OF CREDIT FOREIGN CURRENCY GLOBAL FINANCIAL STABILITY GLOBAL FINANCIAL SYSTEM GOVERNMENT REGULATION HEDGE FUNDS HOME OWNERSHIP HOUSING INCENTIVE STRUCTURES INCOME INFORMATION ASYMMETRIES INFORMATION DISCLOSURES INSURANCE INSURANCE MARKETS INTEREST RATE INTEREST RATE POLICIES INTEREST RATE SPREADS INTERNAL CONTROLS INTERNATIONAL BANK INTERNATIONAL STANDARDS INVESTING INVESTOR PROTECTION JURISDICTION JURISDICTIONS LACK OF TRANSPARENCY LAWS LEGISLATION LENDER LENDER OF LAST RESORT LIABILITY LIQUIDITY LIQUIDITY RISK LOAN MACROECONOMIC POLICY MANDATES MARK-TO-MARKET MARK-TO-MARKET ACCOUNTING MARKET DISCIPLINE MARKET FAILURE MARKET FAILURES MARKET PARTICIPANTS MARKET STRUCTURE MARKET VALUE MONETARY AUTHORITY MONETARY FUND MONETARY POLICY MORAL HAZARD MORTGAGE MORTGAGE LENDING MORTGAGE MARKET MORTGAGES OPERATIONAL INDEPENDENCE PARTICULAR COUNTRY PAYMENT SYSTEM PAYMENTS SYSTEMS POLICY RESPONSE POLICY RESPONSES PORTFOLIO PRIVATE SECTOR DEVELOPMENT PRUDENTIAL REGULATION PRUDENTIAL REGULATIONS PRUDENTIAL SUPERVISION PUBLIC FUNDS RAPID GROWTH RATING AGENCIES REAL ESTATE REGULATOR REGULATORS REGULATORY AGENCIES REGULATORY AUTHORITIES REGULATORY BODIES REGULATORY CAPITAL REGULATORY FRAMEWORK REGULATORY FRAMEWORKS REGULATORY GOVERNANCE REGULATORY REGIMES REGULATORY SYSTEMS RETURNS RISK ASSESSMENTS RISK CAPITAL RISK CONTROLS RISK EXPOSURES RISK MANAGEMENT RISK MANAGEMENT SYSTEMS RISK MANAGERS RISK MEASUREMENT RISK TAKING RISK WEIGHTS SAFETY NET SECURITIES SHAREHOLDERS SMALL COUNTRIES SOLVENCY SOVEREIGN DEBT SOVEREIGN DEBTS STOCK OPTIONS SUPERVISION OF BANKS SUPERVISORY AUTHORITIES SUPERVISORY AUTHORITY SUPERVISORY FRAMEWORK SUPERVISORY POWERS SYSTEMIC RISK SYSTEMIC RISKS TAX TAX CODE TAX INCENTIVES TAX SYSTEM TRADING TRANSPARENCY TURNOVER UNDERWRITERS VALUATIONS WAGES A large body of evidence points to misaligned incentives as having a key role in the run-up to the global financial crisis. These include bank managers' incentives to boost short-term profits and create banks that are "too big to fail," regulators' incentives to forebear and withhold information from other regulators in stressful times, and credit rating agencies' incentives to keep issuing high ratings for subprime assets. As part of the response to the crisis, policymakers and regulators also attempted to address some incentive issues, but various outside observers have criticized the response for being insufficient. This paper proposes a pragmatic approach to re-orienting financial regulation to have at its core the objective of addressing incentives on an ongoing basis. Specifically, the paper proposes "incentive audits" as a tool that could help in identifying incentive misalignments in the financial sector. The paper illustrates how such audits could be implemented in practice, and what the implications would be for the design of policies and frameworks to mitigate systemic risks. 2013-01-29T17:49:18Z 2013-01-29T17:49:18Z 2013-01 http://documents.worldbank.org/curated/en/2013/01/17155359/incentive-audits-new-approach-financial-regulation http://hdl.handle.net/10986/12199 English en_US Policy Research Working Paper; No. 6308 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research |