Prudential regimes should encourage behaviour that supports systemic stability; discourages regulatory arbitrage; and adopts the concept of “systemic” risk, factoring in the effects of leverage and funding. In most jurisdictions, this will require improved coordination mechanisms between various financial authorities, mandates for all financial authorities to take account of financial system stability, and effective tools to address systemic risks.
It will also require an effective global table, which is now proposed to be the Financial Stability Board, to bring together national financial authorities to jointly assess systemic risks across the global financial system and coordinate policy responses.