With that in mind, we conclude with some thoughts on issues which might be fruitful for future research on regulatory policy. International Regulatory Reform  There are already a number of detailed accounts of the regulatory reforms undertaken by international policymakers over the past decade (Carney (2017b), Duffie (2017), FSB (2017a), Greenwood et al (2017), Sarin and Summers (2017), Yellen (2017)). The following is a summarised and simplified account of the state of play. It partitions reform efforts into their microprudential and macroprudential components, recognising that the two often overlap and are usually mutually reinforcing in their impact. We focus here squarely on international banking regulation. We do not cover insurance regulation or international accounting standards. We do not discuss regulatory reforms undertaken nationally, such as the “Volcker Rule” in the US (Financial Stability Oversight Council (2011)) and the “Vickers proposals” in the UK (Independent Commission on Banking (2011)). Nor do we discuss international reforms of market infrastructure – for example, clearing – and financial market instruments (FSB (2017b)). Finally, we do not cover changes to banks’ large exposures regime and a range of pay and governance reforms. Microprudential Reform  Under the umbrella of Basel III, international reform of microprudential regulation has focused on four key areas: capital, leverage, liquidity and resolution. Taking these in turn:  Reform of risk-based capital standards has focused on increasing the quantity and quality of capital held by banks against their asset exposures.
Co-ordination is stressed in the Treaty itself, which requests that Member States treat national economic policies “as a matter of common concern” and subject them to a multilateral procedure. Naturally, this economic co-ordination can in no way undermine the independence of the ECB and the Eurosystem. Even more importantly, the euro area possesses institutional mechanisms which are conducive to an appropriate policy mix: the Stability and Growth Pact includes, on the part of the Member States, strict fiscal requirements. I will cite three economic justifications for the Treaty provisions that gave rise to the Stability and Growth Pact: –  First, by keeping a rein on the fiscal policies of the EMU Member States, the Pact ensures a satisfactory policy mix within the euro area. This is essential for monetary policy, in order to counterbalance the fact that Europe does not have a federal government and hence no significant “federal” budget. Mutual surveillance and close co-ordination of fiscal policies are the responsibility of the "Eurogroup" and of the Ecofin Council. Keeping the deficit below 3 % of GDP, and achieving budgets that are "close to balance or in surplus" in the medium term, ensure a balanced policy mix throughout the euro area. –  Second, the Pact helps to prevent well-managed economies from having to bear an unjustified risk premium on interest rates, resulting from the poor management of other EMU economies, by setting up a penalty system for excessive deficits.