During the two decades prior to the global financial crisis, regulation in developed countries was characterised by progressive deregulation of various aspects of the functioning of the financial sector, premised on the efficiency of markets. The philosophy underlying ‘supervision’ prior to the crisis focused on the judgement of supervisors on the risk management and financial capacity of banking institutions. It is now clear that even when the build-up of risk in the system was quite apparent, the regulators and policy-makers were not prepared to intervene, on account of their belief that markets 'would somehow get it right'.
In the post-crisis period, when all the traditional canons of good regulation are being challenged, I would propose five principles of good regulation.