Global financial market architecture: Do we need world financial supervision?

With the increasing integration of the financial markets, developments in one country can have devastating effects on the stability of the financial system in another. The present crisis clearly shows this. Does the globalization of the financial markets call for a global regulatory architecture? Alexander Karmann, Technical University of Dresden, sees little possibility for the creation of an international supervisory agency at the present time. For him it is "simply inconceivable that countries such as the US … will allow an outside agency to regulate their own financial markets". The lesson from the current financial crisis, in his opinion, could be the creation of a "world financial agency", which by advising and by providing information would place the national agencies in a position to regulate their own national banks efficiently. Roger M. Kubarych and Harm Bandholf, HypoVereinsbank, New York, point out that such international supervision already exists, the Financial Stability Forum, FSF, that has as its members top-ranking representatives of the finance ministries, central banks, and supervisory boards of the G7 countries and five further important international financial centres as well as representatives of important international institutions and agencies (for example, the Bank for International Settlements, the World Bank, OECD and IMF). Both institutions aim at intensifying their cooperation and in monitoring the global financial system as well as working out policy guidelines and standards for international financial supervision. The implementation of these guidelines, in turn, is the task of the national governments. In essence this means: "Global game rules - national supervision". However, governments disagree strongly on the structure of the envisioned financial system and the authority that should be assigned to the various financial institutions. But in light of the change in administrations in Washington and the fact that banks worldwide are dependent on direct state financial aid, Kubarych and Bandholz see better chances for the introduction of a more flexible and at the same time more efficient monitoring system. Richard Sturn, Graz University, argues that not more but better regulation is necessary.