Financial reform may lead to future crises due to under-regulation paradox.
The article discusses how financial regulations can be both too little and too much, leading to financial crises. By using Bayesian inference, the researchers show that regulations can help prevent crises, but too much regulation can also stifle economic growth. The length of time without a crisis can influence the level of regulation needed. The study suggests that better information disclosure, independent regulatory agencies, and global standards can help strike a balance between under- and over-regulation.