ABSTRACT

In most countries, deposit insurance regimes were inadequate, insolvency regimes for financial institutions were non-existent and agreements for cooperation between various official bodies. The disorderly failure of some financial institutions could cause so much systemic damage. Regulating size has some superficial attractions but also some downsides. Some of the activities might be banned or regulated, but that is another issue. Financial system made up of only small institutions can be subjected to systemic risks. There is a consensus that many transactions should be standardized such that they can go through central clearing houses. There can be real value added with customized financial instruments of various sorts, and these would likely have to continue to trade 'Over the Counter' (OTC). The fundamental concern is regulation and legislation is essentially designed to be punitive. The Basel Committee continues to research to avoid the overreaction and underreaction of policymakers.