The future of financial regulation: an exchange of views

A conference took place on 3 March 2009, on the issue of the future of financial regulation, between Anil Kashyap and several Banque de France staff members. Six issues were discussed: • the future of capital regulation; • liquidity regulation; • macroprudential regulation; • moral hazard; • the relationship between monetary policy and financial stability; and • bank restructuring. Here is the transcript of their discussion. Three main conclusions emerged from the discussion: regulators should design mechanisms aimed at avoiding asset fire sales in stress times, possibly through a mandatory mechanism for recapitalisation; strengthening central banks’ responsibilities for financial stability should not blur their main task of maintaining price stability; the current situation is fundamentally different from the Japanese experience during the “lost decade” insofar as in Japan, banking losses came from lending to bad firms whereas today, problems come from bad collateral.