Regulating Financial Markets in Times of Stress is a Fundamentally Human Undertaking

Abstract

The financial crisis of 2007–2009 now lies sufficiently far behind us to allow a first appraisal of the regulatory consequences that followed. As distinguished from asset managers, regulators cannot act countercyclically. Regulatory windows of opportunity remain open only for very brief periods and close quickly. It is not realistic to expect that banks can be prevented from once again taking on increasing risk. The pressure on them to show profitability is simply to great. Regulators are thus best advised to concentrate on imposing appropriate prudential requirements. The distribution of authority among the various supervisory agencies and the means of coordinating their activities need to be reassessed; in particular, the role that should properly be assigned to the central banks has not yet been clarified.