Regulation-supervision: the post-crisis outlook

Following the G20 summit in April 2009, the principles defined by the Heads of State and Government must be turned into operational rules. Over the coming period, the weaknesses of the regulation-supervision system need to be considered and the associated risks integrated into any new measures that are defined in the current environment. The current system has four major weaknesses: • limited coverage; • fragmentation; • heterogeneity; • pro-cyclicality There are five risks that need to be managed: • coordination between numerous bodies at multiple levels can render the system opaque and unresponsive; • the potential accumulation of regulatory capital requirements; • difficulty in establishing the relevant liquidity management tools; • the increasing complexity of prudential supervision rules may hamper financial innovation; • macroeconomic and microeconomic approaches are too frequently considered separately, preventing a proper assessment of the efficiency of monetary policy and its impact on the real economy.