Recent events have once again highlighted weaknesses in the global regulatory system. The highly complex network of bodies overseeing different parts of the financial markets failed to identify or respond to the macro trends that led to the crisis. There was too little capital in the banking system. There is also a serious accountability gap, with regulatory bodies free to work to their own timetables. And the links between macroeconomic policy makers in finance ministries and central banks, on the one hand, and regulators on the other, have been too weak. The changes made so far by the G20 summits are very modest and are unlikely to correct these flaws. There remains a particular problem in the European Union, where the crisis has shown that the single financial market requires more central coordination of regulation than the politicians have so far accepted. There remains, therefore, much unfinished business in financial regulatory reform.
The Financial Stability Board needs more authority to coordinate the activities of the sectoral regulators.
Financial regulation must in future be more sensitive to changing macroeconomic conditions.
There is a need for an absolutely higher level of capital in the banking system.
Europe needs a central regulatory authority, if the single financial market is to survive in its present form.