Addressing Systemic Risk: Financial Regulatory Design

Abstract

The global, euro-zone, and Asian financial crises have highlighted the importance of appropriate regulatory design and coverage for financial stability. In particular, in the wake of the global financial crisis the Group of Twenty (G20) and the Financial Stability Board (FSB) and its constituents (such as the Basel Committee on Banking Supervision, the International Organization of Securities Commissions, and the International Association of Insurance Supervisors) have or are in the process of developing international regulatory standards and guidance in relation to financial regulation and financial stability. This Article will discuss the range of international initiatives in the context of the overall design of a system of financial regulation, focusing on approaches to the regulation of systemically important financial institutions (SIFIs). Of these, nonbank finance has proven to be a major source of potential systemic risk, and the G20/FSB is currently addressing this in the context of “shadow banking,” an issue of increasing concern throughout the world. Finally, this Article will discuss financial regulatory structure in the context of financial regulatory design, particularly as it relates to SIFIs, shadow banking, and financial conglomerates.