If comparable standards are not implemented in all jurisdictions simultaneously, financial activity will likely migrate to less regulated jurisdictions as well as into shadow banking with disruptive consequences for the entire global financial system. As we move forward in the area of regulation, the investment needs of the emerging market and developing economies also deserve special attention.
There are two important points in this regard. First, it is important to ensure that financial intermediaries in emerging and developing economies are not disadvantaged in the new regulatory framework, especially since the opportunities and challenges in their systems are quite different. Second, the more demanding regulatory standards should not lead to deleveraging by global financial institutions out of emerging markets.