Development and Finance from issue 2010/3

György Csáki

Crisis-induced Efforts to Regulate Global Finance

- Abstract -

JEL G-25

 

Given that money is flowing towards markets that are less regulated (which in the profession is known as ‘regulatory arbitrage’), a consensus has more or less emerged between governments, central banks and international financial organisations that global coordination in the field of financial system(s) regulation is inevitable. Players on the money and capital markets – quite naturally – are not very enthusiastic about the political will to tighten regulation and supervisory activity. The purpose of more efficient regulation is to enhance the security of depositors, investors and taxpayers, not forgetting, however, that ‘it is hard to regulate finance against the incentives of those who run it. Fixing the problem has to include changing incentives in simple and transparent ways. To put it bluntly, participants have to fear the consequences of making serious mistakes, not just be told to stop. The process has started and – perhaps not in the very short term but – a certain system of global regulation and supervision will be created, while we shall also see greater coordination between national financial regulation and supervisory systems too. However, there is a large number of differences – both theoretical and technical – between the individual national financial systems that it would be unrealistic to expect swift progress.


György Csáki, CSc, professor of economics (Szent István University, Institute of International Economics)

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