If we believe the above theories, and assume that regulations impose ultimately a cost on the consumer or taxpayer, it may be in the public interest to remove regulations and allow greater competition. This is the primary driving force behind current market deregulation policies prevalent in OECD markets. A recent example of the deregulation drive to “make markets work better” is the report of the Australian Financial System Inquiry (Wallis Report), whose recommendations seek to:create a flexible regulatory structure which will be more responsive to the forces for change operating on the financial system; clarify regulatory goals; increase the accountability of the agencies charged with meeting those goals; ensure that the regulation of similar financial products be more consistent and promote competition by improving comparability; introduce greater competitive neutrality across the financial system; establish more contestable, efficient and fair financial markets, resulting in reduced costs to consumers; provide more effective regulation for financial conglomerates which will also facilitate competition and efficiency; and facilitate the international competitiveness of the Australian financial system. On the other hand, a market without regulation also does not work. Free banking and frontier capitalism results in control by the Mafia, with huge losses inflicted on the innocent and unwary. The public interest theory argues that regulation is an attempt to correct for market failures, such as monopoly, externalities and lack of information. For example, the social cost of the failure of a financial institution may be much higher than the private cost to the institution itself.
from 4.5% to 3.6% of GDP, with the deficit being predominantly financed by foreign borrowing, would slow down government demand for domestic borrowing. The growth in government demand for credit could decrease from this year’s 32.7% to about 6%. However, even with this relatively low growth rate, there will be little room for the rechannelling of banks’ domestic credit potential towards the private sector. The situation can be further aggravated by shipbuilding, which is not included in these estimates, but can nevertheless affect the budget and its borrowing in 2010. BIS Review 2/2010  1  (X) Under such circumstances, monetary policy will have to balance between reducing the current account deficit and providing for the aggregate domestic credit growth accompanied by exchange rate (foreign exchange reserves) stability. Consequently, we expect to continue implementing the existing instruments (foreign exchange interventions and open market operations), for now, without changing the reserve requirements (because of the favourable liquidity situation in the banking sector), or relaxing the prudential measures, as well as without raising regulation costs. We anticipate that total liquid assets, money supply and bank placements will increase by about 7%, 4.5% and 4.4% respectively.