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22 December 2009 15:19 Quote |
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How to regulate the use of innovative financial instruments?
The Worldconnectors are formulating a statement on Financial Systems. However, there are still some questions that need to be answered. Please give your input on the following question:
"The financial crisis has made clear that certain financial instruments contain high risks, not necessarily at the level of the individual banker, but all the more so for society at large. One option to reduce risks would be to downsize financial institutions to the level they can no longer be considered too big to fail. Another option would be to split up the financial sector in a service providing component, and a business component. In this light, the issue of securitisation is particularly relevant. The question is whether securitisation should be allowed, and if yes, in which form? Should secularisation be prohibited for banks with a public function? A potential difficulty with distinguishing between different banks is that they act as interconnected tanks; as soon as service banks are confronted with strict regulations, they are likely to offload their risky packages to the non-regulated sector. An important related question is that of responsibility. The old system was largely based on mislaying responsibility. Reforming the system would imply measures to prevent this from happening. This also calls for ‘decomposing complexity’, in order to ensure that people from within and outside the sector can actually understand the products. But, what would be the consequences of restricting innovative financial instruments for economic growth?" |
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