This study examines the effectiveness of four key regulatory measures—enhanced capital adequacy requirements, elevated liquidity ratios, separation of banking activities, and restrictions on bankers’ bonuses—in mitigating excessive risk-taking and strengthening risk management within the banking sector. Drawing on case studies such as Northern Rock, Bear Stearns, the Glass-Steagall framework, and post-crisis bonus regulations, the paper evaluates both the benefits and limitations of each approach. The findings indicate that while these measures contribute to financial stability by improving loss absorption capacity, reducing systemic risk, and promoting prudent behavior, they also entail potential downsides, including constrained lending, reduced profitability, and unintended risk migration to less-regulated sectors. The analysis underscores that no single policy is sufficient in isolation; rather, a comprehensive, balanced regulatory framework—integrating macro- and micro-prudential measures—is essential to safeguard financial stability without unduly hindering innovation and economic growth.
Lyu et al. (Wed,) studied this question.