In this speech, I examine the current Eurozone Crisis from the perspective of how to devise and implement a regulatory framework appropriate for financial stability and economic activity. In particular, I have two issues in mind. The first issue is that regulatory changes often have unintended and sometimes large crossborder impacts in the increasingly integrated world of finance.
One country’s deregulation may cause excessive risk taking not only by that country’s financial institutions, but also by those in other countries, and in some cases, the impact is larger for foreign institutions than domestic ones. The second issue I wish to raise is that the effectiveness of regulatory changes is crucially dependent on economic conditions at the time those changes are introduced.