Was the financial crisis the result of ineffective policy and too much regulation? An empirical investigation

Nichols, Mark W.; Hendrickson, Jill M.; Griffith, Kevin
June 2011
Journal of Banking Regulation;Jun2011, Vol. 12 Issue 3, p236
Academic Journal
Every major financial crisis in the United States has been followed with a regulatory response meant to keep another crisis at bay. The current crisis is no different; on 21 July 2010, a sweeping regulation was passed designed to prevent another financial crisis. If history is a reliable guide, the regulatory response is likely to contribute to the next financial crisis unless some sound understanding of the causes of the crises is determined. The purpose of this article is to empirically test the perspective that too much regulation and poor policy choices contributed to the first financial crisis of the twenty-first century. We find statistical evidence to indicate that policies at the Government Sponsored Enterprises, monetary policy and the Community Reinvestment Act all compromised large bank performance for the 1999 through 2008 period.


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