Financial Regulation: Theory and Princip

Priority Reg: IFEP and PEPM. This course covers the theory and principles of financial regulation. Regulation in the financial sector covers both sets of rules (regulations), usually grounded in law and enforceable by law, and supervision, oversight exercised through examinations and surveillance, with legal powers to ensure remediation of significant problems.  We will discuss the underlying rationale for financial regulation, the most important elements involving market failure and externalities associated with financial activity.  These elements can arise arise from the network nature of financial activity, asymmetries of information; financial fragilities; and market power.  The design of a regulatory system should also take account of the constructive role of market forces, such as incentives for sound financial firm governance and the market’s discipline of risk-taking.