The first important item on the reform agenda is to extend the perimeter of regulation so that any firm whose failure could have serious systemic consequences will be subject to consolidated supervision, including minimum capital and liquidity requirements.
As last year's events showed, systemic problems can arise from the activities of non-banking firms but, under present law, these requirements apply only to firms owning a commercial bank. Indeed, there is an incentive to shift riskier activities into unregulated firms. A second item is to strengthen the prudential rules applicable to supervised institutions. This component of a reform program has manifold elements.