How should we regulate the global financial system?
By Jonathan Ostry Jan 15 2015
The global financial system is undergoing massive structural change as a result not only of the crisis but of the regulatory changes in its wake.
The very fact that the whole post-crisis regulatory overhaul has been spearheaded by the Financial Stability Board and G20, i.e. with explicit political backing by a global set of policy-makers, is very innovative and has not been the case in setting international regulatory standards before. The past five years have witnessed a profound change of international regulatory standards for banks and non-banks alike.
Still, of course, challenges remain. Addressing the issue of “too-big-to-fail” remains a key issue. Efforts are needed to: (i) finalize living wills and identify and remove barriers to firms’ resolvability; (ii) reach consensus on banks’ loss-absorbing capacity to ensure that they can be resolved; (iii) address obstacles to cross-border cooperation and recognition of resolution measures; (iv) ensure recovery and resolution of non-banks; and (v) promote better regulation of the shadow banking sector. Cross-border challenges persist also in over-the-counter derivatives reform.
As regulatory regimes developed in parallel in the two largest markets (European Union and United States), they resulted in a framework that overlaps and is not completely consistent. Regulatory decisions allowing reliance on home regulatory regimes (known as “deference”) are urgently needed. Trade reporting requirements have been adopted in key countries but legal barriers frustrate implementation. Progress on trading standardized contracts on exchanges and electronic trading platforms continues to slip. Political commitment is needed to advance reforms in all these areas.
Note: This box draws on the latest Global Financial Stability Report and related IMF work. It is extracted from the Global Risks 2015 report.
Author: Jonathan D. Ostry is Deputy Director of the Research Department (RES) at the International Monetary Fund.
A Vision for Iraq
Speakers: Klaus Schwab, Charlie Rose, Haïdar Abadi
We know the sunset was setting. The waves are coming in. BOTG are now wanted now on IRAQ's time table not ours. Which is now. WE always knew the last thing would be BOTG and publically announced.