Financial Market Regulations
On Monday, July 13, 2009 16:22 by Sudip BandyopadhyayToday’s regulatory structure evolved in piecemeal fashion over the past eight decades, with short-term responses to successive financial crises heaped one atop another. Getting our regulatory house in order requires constructing a new foundation, rather than taping broken windows and patching cracked walls.
Financial regulatory reform must protect investors and restore investor confidence. That demands a new approach to regulation. Innovative financial instruments blend elements of equity, debt and insurance – but regulators today only focus on their own specific area of responsibility. We must close the gaps, ensuring all market functions are supervised by an appropriate regulator. Also Financial markets are increasingly borderless and regulators must work in harmony with their counterparts around the world. This could be accomplished by establishing a strengthened Financial Stability Board, which the Group of 20 have recommended. The new system must bring complex financial instruments out of the shadows. What cannot be seen cannot be regulated properly. The solution: trade standardised derivatives on regulated exchanges rather than opaque over-the-counter markets. Lack of transparency contributed mightily to the seizure of credit markets, as investors struggled to properly price and analyse risk. Many financial institutions still do not fully understand the exact composition and value of the financial products that have wrecked their balance sheets. Regulated exchanges have a track record of transparency and reliability that served investors well through many periods of market disruption. Again,the new regulatory system must stress smarter regulation, not over-regulation. Quality, not quantity, is the test. Regulatory overreaction would limit access to capital markets, damping the entrepreneurial energy that is critical to any sustained economic recovery. It would also drive companies and jobs to overseas markets. Investors, businesses small and large, and our financial markets cannot afford regulatory overkill.
