Richmond Fed Economic Brief

EB 09-11, November 2009

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headshot of Robert L. Hetzel

Rolling Back the Financial Safety Net

by Robert L. Hetzel, senior economist, and Stephen Slivinski, senior editor of Region Focus

Abstract

The expansion of the federal financial safety net has increased the incentives for financial firms to take on more risk than they would have otherwise. Yet current regulatory reform proposals do not address this root cause of financial instability. Sharply curtailing the financial safety net is a necessary step to achieve enhanced market discipline.

Full Essay

Category

Financial Markets and Institutions

Additional Resources

Goodfriend, Marvin, and Robert G. King. "Financial Deregulation, Monetary Policy, and Central Banking." Federal Reserve Bank of Richmond Economic Review 74, no. 3 (May/June 1988): 3-22.

Goodfriend, Marvin, and Jeffrey M. Lacker. "Limited Commitment and Central Bank Lending." Federal Reserve Bank of Richmond Economic Quarterly 85, no. 4 (Fall 1999): 1-27.

Hetzel, Robert L. "Should Increased Regulation of Bank Risk-Taking Come from Regulators or From the Market?" Federal Reserve Bank of Richmond Economic Quarterly 95, no. 2 (Spring 2009): 161-200.

Steelman, Aaron, and John A. Weinberg. "The Financial Crisis: Toward an Explanation and Policy Response." Federal Reserve Bank of Richmond 2008 Annual Report, pp. 5-17.