Newsletter March 2011: Top regulator calls for more radical financial reform

CAMBRIDGE, England – Although fixing poor incentives, such as those created by ‘too big to fail’ banks or by perversely designed bonuses for bank staff, are a necessary part of the regulatory response to the financial crisis, they are not sufficient. The policy response also needs to focus on the complex dynamics of the whole financial system, particularly higher equity capital requirements, and macro-prudential policies which respond in a discretionary fashion to the credit cycles and instabilities that could arise even in a system where individual agents’ incentives were always well designed.