Regulators' Response to the Current Crisis and the Upcoming Reregulation of Financial Markets: One Reluctant Regulator's View

Abstract

In this short Article, I sketch out a few thoughts on securities regulators’ response to the financial crisis of 2007-09 and on the upcoming process of financial markets reregulation, from the uncommon perspective of a moderately free market-leaning legal scholar who was appointed as commissioner of the Italian securities regulator just before the crisis erupted. First, I show how a financial crisis like the one we have recently experienced requires regulators to become active and appear to be “doing something,” no matter whether “something” will even help markets, given the extreme nature of the circumstances. Second, I ask whether such a knee-jerk, public relations-minded kind of response is inevitable or whether better corporate governance and accountability arrangements could improve the way regulators work and react to crises. Finally, I reflect upon the upcoming wave of reregulation, highlighting its perils and the most likely mistakes to come, concluding that, leaving aside the necessary overhaul of banking regulation, maintaining a pretence of doing something while actually innovating very little may in fact be the best course of action for policymakers who care about the effectiveness of financial market regulation in the long run.

Keywords: Financial Crisis, Reregulation, Short-selling, Short-selling ban, Supervisory Authorities, Regulators' Governance

JEL Classification: G28, G38, K22, K23