Past and future regulation to prevent a systemic financial crisis

• Main Author: Mario Sarcinelli
• Format: Article
• Language: English
• Published: Associazione Economia civile 2010-01-01
• Series: PSL Quarterly Review
• Subjects: Introduction; Financial Crisis; Rules
• Online Access: http://ojs.uniroma1.it/index.php/PSLQuarterlyReview/article/view/9431/9326

The article is a revised and updated version of that published on the March 2010 issues of Moneta e Credito. It was there claimed that, up to now, the G20 has supervised the process to revitalize the real economy affected by the Great Recession through fiscal stimuli and a very easy monetary policy, and to rescue the battered financial system by injecting capital into giant banks and firms. The G20 is now turning its attention to financial regulation, with the FSB as its main operational arm. The ideas that are being proposed stress the need for disincentives toward too much risk taking (more capital, higher liquidity, limits to remunerations and bonuses, etc.), particularly by big and complex financial institutions that are likely to entail systemic risks. The paper maintains that, as the disincentive approach is insufficient to deter financial managers looking for power, some kind of segmentation needs to be introduced, as suggested by Paul Volcker.