Perhaps the most important choice in reforming the financial system has been all but ignored – is it better to have a few large, strong regulators, banks and exchanges – or a wider variety of smaller ones? How we answer this question could determine whether reforms succeed or fail.
Pity the politicians. We all have to cope with the consequences of the financial crisis – but they also have to find a solution. And not just politicians. Leaders of the financial markets have a tremendous influence – perhaps more than they realise – on what is going to happen.
Transparency, disclosure and a more conservative approach to risk and capital are things that everyone can endorse, however reluctantly. But there are much harder questions to answer.
Perhaps the hardest is the choice between unity and diversity; a few big institutions or many little ones; standardisation or variety.
Most of the...