Financial Market Regulation

The international financial crisis has shaken the confidence in the competence of financial supervisory authorities. In the light of massive system failures, the principles of financial supervision should be fundamentally revised. The experience of the current crisis has led to the consensus that the existing regulatory framework needs to be reinforced by more efficient macro-oriented control and steering elements. From a supervisory perspective, the systemic risk originating from internationally active banks or globally active hedge funds could be effectively controlled by imposing a much higher minimum capital requirement compared to banks operating only in the domestic market. The higher regulatory equity capital requirements ensure that the major banks carry at least part of the systemic risks that they create. A significant role in the re-orientation of banking supervision will also be played by the financial stability policy. A stronger integration of a forward-looking strategic banking supervision and banking surveillance policy into the stability strategies of monetary policy would significantly increase the effectiveness of central banks and banking supervision.