FED Chairman Mr Ben S Bernanke argued on April 11, 2007 at the NY University Law School that, in many situations, regulation that relies on the invisible hand of market-based incentives can complement direct government regulation. For market-based regulation to work, the incentives of investors and other private actors must align with the objectives of the government regulator. In particular, private investors must be sophisticated enough to understand and monitor the financial condition of the firm and be persuaded that they will experience significant losses in the event of a failure. When these conditions are met, market discipline is a powerful and proven tool for constraining excessive risk-taking.

NEW YORK, Tuesday, April 11, 2007


Source: US Federal Reserve System, WWW.FEDERALRESERVE.GOV

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