To tackle these weaknesses at an international level, the G20 are pursuing a comprehensive and ambitious regulatory reform agenda. I believe it is vital to mitigate the main weaknesses of the financial system. The new rules for banks’ capital and liquidity cushions, for example, are a good start in this respect. However, this is by no means enough.
Tougher regulation for banks might lead to regulatory arbitrage. And in this regard, there is one place to focus on: the so-called shadow banking system. The shadow banking system comprises activities that are conducted outside the sphere of regular banking. I do not favour the commonly used expression of shadow banking, since the activities of the shadow banking system are not bad per se.