Abstract
As we have seen in recent years, the scale, complexity and activity of banks and other financial institutions can put our financial security at risk. Although the causes of the financial crisis are complex, it is clear that a lack of regulatory oversight and inappropriate regulatory design played an important role. Indeed, regulatory tools were not designed to address the kinds of systemic risks associated with the globalization of banking and financial services. And in the end, it's the taxpayers who pay for the banks' mistakes: it's their taxes that are used to bail out the banks, fund the cost of regulatory reforms and put in place the public policies needed to repair the economic damage caused by the banking collapse.
Many banks have collapsed in recent years. In many countries, particularly in Europe, the guarantee of bank savings and deposits was not pre-capitalized when the entire banking system proved unable to cover depositors' losses. Regulatory structures designed to facilitate banking services, such as the European passport system, failed to take into account the fact that neither the host nor the home Member State exercised sufficient control over capital adequacy, as demonstrated by the operations carried out by Icelandic banks in continental Europe. The securitization of loans had the effect of masking the real danger, while giving the impression that the risks incurred by the lender were "covered". The measure taken under the Basel II accords, allowing banks to monitor themselves, resulted in a failure of supervision [1].
All over the world, regulators, supervisors and governments are wondering how to prevent the banking system from failing again. The Basel Committee on Banking Supervision has drawn up standards to identify and contain systemic risks [2]. The Financial Stability Board has adopted a policy framework to reduce the moral hazard posed by systemically important banking institutions, and to reform derivatives markets [3]. In an era of increasing globalization, particularly as regards banking and financial services, regulation implemented exclusively by individual states is no longer sufficient to prevent a repetition of the conditions that led to the crisis. Moreover, it is clear that the neoclassical model of financial markets can no longer serve as a basis for regulation. Indeed, neoclassical economic theory assumes a perfect flow of information on the market, and the absence of externalities and transaction costs [4].
