Abstract
The stunning failure of banks put regulatory intervention high on the agenda of governments. Adequate risk monitoring, including by credit rating agencies, measurement and management have proven to be a daunting task, whereas regulation of innovative financial instruments has not brought about adequate disclosure and transparency. After critically reviewing the virtues and pitfalls of financial innovation, this paper offers an analysis of the main transparency initiatives undertaken in the EU and the US in the wake of the crisis to harness various financial innovations that have marked the history of financial markets in the last three decades. In addition, the paper identifies the approach as to financial innovation that the General Agreement on Trade in Services (GATS) of the World Trade Organization (WTO) has adopted in the early ‘90s and assesses the likely impact of the recent financial crisis on this stance. As the perimeter of regulation grows and countries become more suspicious vis-a-vis home-country financial regulation, trade in financial services will most likely not remain unaffected.
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