UN calls for tougher financial regulation
Wednesday, 8 October 2008
GENEVA, Tue Oct 7, (Reuters): The United Nations called on Tuesday for tougher regulation of financial markets to deal with the "crisis of a century" and warned that the global policy response risked creating a prolonged deflationary downturn.
Adding its voice to those blaming the free-market model of the United States and Britain for the crisis, the United Nations Conference on Trade and Development (UNCTAD) said considerable public intervention was now needed to avoid greater damage to the financial system or real economy.
"The market-fundamentalist argument against stronger regulation based on the idea that market discipline alone can most efficiently monitor banks' behavior has clearly been discredited by this crisis," it said in a policy brief.
UNCTAD proposed several quick regulatory fixes:
-- Reassess the role of credit-rating agencies which have made the market more opaque instead of increasing transparency;
-- Create incentives for simpler financial instruments, ending the regulatory stance that creates a bias in favor of sophisticated but poorly understood financial products;
-- Deal with maturity mismatches in non-bank financial institutions which leave such firms funding long-term liabilities in volatile short-term markets.
Adding its voice to those blaming the free-market model of the United States and Britain for the crisis, the United Nations Conference on Trade and Development (UNCTAD) said considerable public intervention was now needed to avoid greater damage to the financial system or real economy.
"The market-fundamentalist argument against stronger regulation based on the idea that market discipline alone can most efficiently monitor banks' behavior has clearly been discredited by this crisis," it said in a policy brief.
UNCTAD proposed several quick regulatory fixes:
-- Reassess the role of credit-rating agencies which have made the market more opaque instead of increasing transparency;
-- Create incentives for simpler financial instruments, ending the regulatory stance that creates a bias in favor of sophisticated but poorly understood financial products;
-- Deal with maturity mismatches in non-bank financial institutions which leave such firms funding long-term liabilities in volatile short-term markets.