In the light of the financial crisis the G20 leaders agreed at the London summit in April 2009 that, in future, they will supervise and regulate “all systemically important financial institutions, financial instruments and financial markets”. Since then, a bulk of measures has been adopted at subsequent summits in Pittsburgh, Seoul and most recently in Cannes.
One focal point were the SIFI rules designed to contain the “Too-Big-To-Fail” problem. The public sector often had to rescue institutions using taxpayers’ money. This implicit guarantee for SIFIs gives rise to misguided incentives, thus encouraging SIFIs to take excessive risk. Economists call this phenomenon “moral hazard”. The scale of this problem is vast!