<p>This is a good question to ask, and the short answer is no there isn't. There probably should be, but the system itself is extremely complex and at the moment this is really the bleeding edge of research in Economics. It's an extremely involved subject, in no small part because the financial system itself is a moving target - it keeps being changed by regulation. </p>

<p>Tirole's research on market regulation, is a part of the larger puzzle, which properly framed would include detailed analysis of the banking system, the behaviours of different kinds of financial instrument, involvement of company structure and regulation, and probably the phase of moon. Well human behaviour has to be included somehow. </p>

CC BY-SA 3.0
2014-11-21T00:50:28.683Z
2014-11-21T00:50:28.683Z
Lumi
<p>Jean Tirole just won the Nobel Prize for his studies in regulation in different markets, including the banking market.</p>

<p>Check:</p>

<ul>
<li><a href="http://press.princeton.edu/titles/9155.html" rel="nofollow">Balancing the Banks:
Global Lessons from the Financial Crisis</a> and </li>
<li><a href="http://mitpress.mit.edu/books/prudential-regulation-banks" rel="nofollow">The Prudential Regulation of Banks</a></li>
</ul>

CC BY-SA 3.0
2014-11-27T16:14:27.320Z
This doesn't answer the question asked. If Tirole has produced a theory of optimal financial regulation, please summarise it here. Linking to content elsewhere is all very well, but it doesn't help build content on this site: it just sends visitors away.
410 gone
CC BY-SA 3.0
2014-11-27T17:20:41.080Z
@EnergyNumbers to be precise, the question is whether something like that exists. And it would be really hard to explain the whole "theory of financial regulation".
Diego Jancic
CC BY-SA 3.0
2014-11-27T18:18:00.577Z
@DiegoJancic well, quite. Hence a vote to close as too broad is appropriate.
410 gone
CC BY-SA 3.0
2014-11-20T15:58:02.213Z
Thank you Diego for your answer, I will have a look at the books you've recommended. Am I right, when I suspect that the content of a book with the title "Balancing the Banks: Global Lessons from the Financial Crisis" is based on experience with issues from the past? So maybe I'm more looking for something like: "Is it theoretically possible to implement a kind of regulation which overcomes the time-inconsistency problem of the current approach?" A colleague already pointed to G. Soros' "reflexivity" in financial markets. Is this the direction to go?
Mikkel
CC BY-SA 3.0
2014-11-20T16:24:26.217Z
@Mikkel I couldn't say, sorry. I'm not an expert on the topic.  I think Jean Tirole is the way to go in general, but you would need to investigate more on the subject. If someone can extend the answer, you're welcome to do it!
Diego Jancic
CC BY-SA 3.0
2014-11-19T17:31:59.693Z
2014-11-19T17:31:59.693Z
Diego Jancic
<p>I wonder whether there exists (even a young) theory of financial regulation in the sense of "how to regulate a financial institution/system in an optimal manner"? I mean, there is experience about several situations which came across in the past, like bank runs, liquidity shortages, insufficient quality of regulatory capital etc. resulting in a crisis and, thus, representing a deviation from the optimal functioning of the financial system. This is then addressed by a regulatory reform which is designed to avoid exactly the experienced situation again in the future, i.e. it is specific to the current problem at hand. Is there something more general? The current approach focuses on ex-post fixing crucial issues, but does there exist a formal normative model or theory about regulating systems like the financial system?
So far, I didn't found something about that but maybe others have?
If not yet, maybe there exists some theory about other kinds of systems which one could apply in a modified version like Cybernetics for mechanical systems or the like?</p>

CC BY-SA 3.0
2014-11-27T18:24:45.420Z
This post has too many questions in it.  Try splitting this into several different posts with only one (or two VERY similar) question(s) each.
Mathematician
CC BY-SA 3.0
2014-11-20T21:06:04.753Z
I do not want to write it as an answer because I do not know enough about it, but you may find interesting ideas in the Regulation School http://en.wikipedia.org/wiki/Regulation_school
Martin Van der Linden
<financial><regulation><banking>
Is there a theory of financial regulation?
Mikkel
# Is there a theory of financial regulation?

(Asked by: username_0 on 2014-11-19)

I wonder whether there exists (even a young) theory of financial regulation in the sense of "how to regulate a financial institution/system in an optimal manner"? I mean, there is experience about several situations which came across in the past, like bank runs, liquidity shortages, insufficient quality of regulatory capital etc. resulting in a crisis and, thus, representing a deviation from the optimal functioning of the financial system. This is then addressed by a regulatory reform which is designed to avoid exactly the experienced situation again in the future, i.e. it is specific to the current problem at hand. Is there something more general? The current approach focuses on ex-post fixing crucial issues, but does there exist a formal normative model or theory about regulating systems like the financial system?
So far, I didn't found something about that but maybe others have?
If not yet, maybe there exists some theory about other kinds of systems which one could apply in a modified version like Cybernetics for mechanical systems or the like?

**Tags:** financial, regulation, banking

> **Comments:**
> **username_2**: I do not want to write it as an answer because I do not know enough about it, but you may find interesting ideas in the Regulation School http://en.wikipedia.org/wiki/Regulation_school  
> **username_1**: This post has too many questions in it.  Try splitting this into several different posts with only one (or two VERY similar) question(s) each.  

---

## 2 answers

### Answer by username_4 on 2014-11-19. Score: 4 | Accepted answer

Jean Tirole just won the Nobel Prize for his studies in regulation in different markets, including the banking market.

Check:

* [Balancing the Banks:
  Global Lessons from the Financial Crisis](http://press.princeton.edu/titles/9155.html) and
* [The Prudential Regulation of Banks](http://mitpress.mit.edu/books/prudential-regulation-banks)

> **Comments:**
> **username_0**: Thank you username_4 for your answer, I will have a look at the books you've recommended. Am I right, when I suspect that the content of a book with the title "Balancing the Banks: Global Lessons from the Financial Crisis" is based on experience with issues from the past? So maybe I'm more looking for something like: "Is it theoretically possible to implement a kind of regulation which overcomes the time-inconsistency problem of the current approach?" A colleague already pointed to G. Soros' "reflexivity" in financial markets. Is this the direction to go?  
> **username_4**: @username_0 I couldn't say, sorry. I'm not an expert on the topic.  I think Jean Tirole is the way to go in general, but you would need to investigate more on the subject. If someone can extend the answer, you're welcome to do it!  
> **username_5**: This doesn't answer the question asked. If Tirole has produced a theory of optimal financial regulation, please summarise it here. Linking to content elsewhere is all very well, but it doesn't help build content on this site: it just sends visitors away.  
> **username_4**: @EnergyNumbers to be precise, the question is whether something like that exists. And it would be really hard to explain the whole "theory of financial regulation".  
> **username_5**: @username_4 well, quite. Hence a vote to close as too broad is appropriate.  

---

### Answer by username_3 on 2014-11-21. Score: 1

This is a good question to ask, and the short answer is no there isn't. There probably should be, but the system itself is extremely complex and at the moment this is really the bleeding edge of research in Economics. It's an extremely involved subject, in no small part because the financial system itself is a moving target - it keeps being changed by regulation.

Tirole's research on market regulation, is a part of the larger puzzle, which properly framed would include detailed analysis of the banking system, the behaviours of different kinds of financial instrument, involvement of company structure and regulation, and probably the phase of moon. Well human behaviour has to be included somehow.


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