Journal of Banking Regulation

, Volume 9, Issue 4, pp 284–292

Regulating risk: A measured response to the banking crisis

  • David Halliday McIlroy

DOI: 10.1057/jbr.2008.15

Cite this article as:
McIlroy, D. J Bank Regul (2008) 9: 284. doi:10.1057/jbr.2008.15


This paper argues that regulatory responses to the sub-prime crisis ought to be guided by the fundamental principle that bank regulation is justified by the adverse consequences of banks taking excessive risks. It therefore proposes three reforms: requiring banks to retain a proportion of any loan that they originate, so as to reduce the risks of moral hazard; insisting that the risks involved in the financial products in which banks trade are transparent; and reforming Basel II so that the amounts of regulatory capital that banks are required to hold are less pro-cyclical than is currently the case.

Copyright information

© Palgrave Macmillan 2008

Authors and Affiliations

  • David Halliday McIlroy
    • 1
  1. 1.LondonUK

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