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Global Financial Regulatory Reforms: Implications for Developing Asia

Global Financial Regulatory Reforms: Implications for Developing Asia

The global financial and economic crisis that started in 2007 highlighted gaps and weaknesses in the current international financial architecture as well as national regulatory systems. Two major shortcomings in the modern global financial system have shaped an array of possible regulatory, supervisory, and prudential reforms. First, supervisors failed to limit excessive risk-taking and leverage by financial institutions. Market failures, due in part to rapid financial innovation, discredited the regulatory model that relied on transparency, disclosure, and market discipline to curb inordinate risk. Second, the absence of well-established crisis management mechanisms both locally and internationally—revealed in the failure to quickly address impaired financial institutions—sapped confidence in the system...