ABSTRACT
Central banks and governments in the U.S. and European Union (EU) responded quickly to the crisis and provided $9 trillion of support to these and other ‡nancial institutions.‡ It is generally agreed that large complex ‡nancial institutions were the primary private sector catalysts for the destructive credit boom that led to the subprime ‡nancial crisis. eir enormous losses reveal the stunning failures of ‡nancial regulatory agencies.§ e agencies imposed light regulation of commercial banks, lighter regulation of investment banks, and little or no regulation on the ‘shadow banking system,’ hedge and private equity funds, and bank-created special investment vehicles (SIVs).¶
It is generally agreed that the current global ‡nancial crisis resulted in large part from major systemic failures: “a failure to put appropriate systems in place, a failure to make systems work properly, and a failure to foster the integrity of systems” (ynne, 2011: 1). According to the analysis of the Financial Stability Board (FSB),** the crisis revealed that ‡nancial oversight institutions, particularly as they relate to the so-called systemically important ‡nancial institutions (SIFIs), must be reformed in four key areas:
1. Unambiguous supervisory mandates and independence as well as access to the appropriate quality and quantity of resources
2. A full suite of powers available to all national supervisors to execute on their mandate
3 An improved set of standards for supervisors, the quality of which must re¸ect the higher complexity of the ‡nancial system and the ‡rms that comprise it, including the integration of better micro and macro risk detection processes
4. A stricter assessment regime that consistently drives supervisors to high quality work and alerts authorities to potential weaknesses in their oversight processes earlier (FSB, 2010b: 7)††
e question posed in this chapter is why have these oversight systems not been in place before the crisis and what are the critical factors for success in bringing about reforms? According to Tomasic (2011: 7) the massive ‡nancial frauds and misconduct revealed by the crisis (and long present in our markets) could occur because white collar crime is extremely dicult to prosecute.* e seeming invulnerability of some of the most powerful individuals and corporations to prosecution and regulation is enhanced in boom times and supported by political forces favoring corporate risk taking. A”er a period of seemingly global agreement that this crisis marks the end of ‡nancial liberalization,† as the world economy recovers, ‡nancial stakeholders are again questioning the need for regulatory and supervisory reforms.
