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Financial Crises and Policy Responses: A Market-Based View from the Shadow Financial Regulatory Committee, 1986–2015

As most readers will know, these years have been often turbulent, marked by financial crises originating from different sources and evoking different kinds of policy responses. But for the most part, the reactions have moved in one direction: more rules, more legal prescriptions, and more prohibitions aimed at preventing the crisis that just occurred.

The reality is that both markets and governments alone often fail to produce ideal outcomes, and policy must take account of both facts. This reality helped motivate the formation of the US Shadow Financial Regulatory Committee (SFRC). Taken as a whole, SFRC does not advocate a totally hands-off approach to regulation of financial institutions and markets. Rather, it takes more of a middle ground, one that urges the incorporation of market-based principles into regulation.

Hopefully, this is the main lesson that careful readers, including policymakers, take away from this book and apply to future financial policy challenges.

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