Restructuring the Financial System: a Synthetic Presentation of an Alternative Approach to Financial Regulation

Abstract

The existing regulation and the changes that are currently proposed by the public authorities do not cope, in our opinion, with the endogenous fragilities created by the evolution of the financial systems in the last decades. Our proposal is intended to re-focus the system towards a sustainable funding of the economy, to limit the size of both the entire financial system and intermediaries, to re-establish a genuine market discipline based on the ‘freedom’ to go bankrupt, to reduce national and international interconnections among financial operators, to avoid regulatory arbitrages, and to increase the margins for regulators to tailor the rules to their national specificities. Crucial for our proposal is the distinction between leveraged and non-leveraged financial institutions and the introduction of structural regulatory measures.

JEL classification: G18 ; G20 ; G28