Regulatory Reform I: General Framework
The Need for Financial Regulation and Its Challenges
The main functions of the financial sector is to support the economy by running an efficient and reliable payment system, by allocating savings and capital efficiently and by helping households and firms to manage risks (cf. Section 1.4). However, the financial sector is particularly prone to market failures (see Box 1.2); this is the main reason why there has always been a wide consensus about the need to steer the activities of the financial sector using regulation. Financial regulation pursues three objectives mainly: to ensure the safety and soundness of financial services providers, to maintain systemic financial stability, and to protect ...
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