Abstract

In a sector as highly regulated as the financial one, effective and well-designed rules are vital in influencing banks’ strategies and the ways in which the economy is financed. These rules help to forestall or, if poorly constructed or insufficient, help to facilitate, the outbreak of financial crises. The global financial crisis of 2007-08, which was partly the result of the deregulation that characterized the 1990s, triggered a radical reform of the prudential rules. This paper examines the rules introduced over the last decade in response to the crisis, focusing on the key legislative developments and their effects to date. It also looks at the challenges that lie ahead in further improving these rules, especially in relation to the degree of openness to international input and to the prioritization of financial stability and economic growth.