CALGARY, Oct. 31, 2013 /CNW/ - Six years ago, a financial and economic
crisis rocked the global economy. Since then international regulators,
led by the Financial Stability Board and supported by the G20, have
designed new laws and regulatory standards to prevent a reoccurrence.
But have these measures helped, or have they made matters worse?
In a report released today by The School of Public Policy, author and
noted international economist William White surveys post-crash
regulation of financial institutions and finds lessons that should be
learned by Canadian regulators.
"The traditional approach of prudential regulators has been to focus on
the safety and soundness of individual financial institutions; a
bottom-up perspective. In practice, this approach remains dominant.
However, in response to recurring financial crises, a top-down approach
to prudential regulation (focused on "systemic stability") has also
begun to attract attention."
While acknowledging the efforts made to increase stability in the
financial sector and avoid another crisis, the author points out some
negative effects of international regulation, for example, the growth
of even more "too large to fail" financial entities in some regions.
"Many of the measures taken to manage the crisis since 2007 have had
unfortunate side effects. Not least, measures used to bail out massive,
faltering institutions deemed "too big to fail" have only created
larger, more complex institutions that would pose an even greater
danger were they to fall victim to another crisis".
Overall, the financial sector will undoubtedly continue to innovate in
response to competitive pressures and in an attempt to circumvent
whatever regulations do come into effect, the author argues. Regulators
need to respond in turn. White suggests that attempts to reduce
complexity would not be misguided and that complex behaviour need not
necessarily be accompanied by still more complex regulation. Removing
impediments to more effective self-discipline and market discipline in
the financial sector are also recommended.
SOURCE: The School of Public Policy - University of Calgary
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