Reforming Regulation and Supervision in Europe: Five Missing Lessons from the Financial Crisis

Abstract

Financial regulation and supervision must change. Everybody agrees about that. But which is the state of the art? Both in the EU and the US reform proposals have been outlined. In order to be effective, such proposals should heed the lessons of the financial crisis, especially when it comes to the design of rules. Generally speaking, the financial crisis taught us that at the root of it all, in addition to monetary policy having been expansionary for too long, there was bad regulation, which caused two intertwined deficits: an information deficit and a behavioral deficit. In order not to risk making the same errors all over again, five main reforms should be implemented.