Asset bubbles, financial sector, and current challenges to regulatory framework

摘要

The manuscript examines the causes of asset price bubbles and financial crises. It studies the current challenges facing the regulatory framework of the financial system. We argue that the current model of regulations can not stop the emergence of either asset bubbles or financial crises in the future. In a causal relationship, the current system of regulations tends to deal with effects, that is the liquidity shortage during the recessions, and not with the causes which can be referred to as distorted financial intermediation. In fact, regulations seek to cure symptoms rather than disease. The rules look like antibiotics, against which the infection acquires immunity. We intuitively propose the idea/concept of how to modify the current system and believe that this concept should be taken into account when developing an effective regulatory framework for the financial system.