Reforming Regulation and Supervision in Europe: Five Missing Lessons from the Financial Crisis

There is general agreement that fi nancial regulation and supervision must be improved. But are the proposed reforms adequate to the task? What criteria should they fulfi l in order to be effective? Financial reform proposals have been outlined both in the EU and the USA. In order to be effective, such proposals should heed the lessons of the fi nancial crisis, especially when it comes to the design of rules. Generally speaking, the fi nancial crisis has taught us that at the root of it all, in addition to monetary policy’s having been expansionary for too long, there was poor regulation, which caused two intertwined defi cits: an information defi cit and a behavioural defi cit.