The objectives and the future of financial regulation in a worldwide context

The global financial crisis has highlighted the need to regulate and monitor risk allocation at the macro level. Therefore, in the aftermath of the worldwide turmoil, the international financial regulatory framework has been reformed adopting a new approach to financial regulation and supervision. This approach takes account the regulatory objective of “financial stability” from a macro-prudential perspective concerning the financial system as a whole, namely intended as “systemic stability”. Starting from this new prospective, this work aims at advancing the feasible future framework of financial regulation in the global context, identifying what seems to be - at least for the moment - the best model of financial regulation to assure a sound governance of global financial markets and, thus, a more crisis-resistant global financial system. This model should represent the most reasonable and feasible solution to the political “financial trilemma”, which states that financial stability, financial integration and national financial policies are conflicting. It is possible to combine any two of the three objectives but not all three: one has to give. In fact, financial integration of markets implies more freedom or lack of regulation (free regulation), and, consequently it compromises financial stability; national regulatory autonomy (territorial regulation) obstructs financial integration; financial stability, pursued by international guidelines (global or universal regulation) limits national autonomy. Therefore, assuming that free regulation has to be neglected, we are seeking to identify the best combination of national and global regulation to ensure a better governance of globalised financial markets, namely the extent to which one can go without obstructing the progress of the other.