Rethinking regulation of the modern financial system
Rules must address uncertainty and risks, and not be too complex, says Bank of Italy's Trapanese
The international financial system has shown a tendency towards increasing complexity during the last few decades. Economists have defined this complexity in terms of greater variety of types of financial intermediaries and instruments, longer intermediation chains, and greater interconnectedness among sectors. Overall, this complexity makes it difficult to trace and monitor each institution’s network of direct and indirect linkages.
In response to these developments, financial regulation has
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