5.1 Introduction

The wider theme of this book is about what we have learned from the recent crisis. There have been many lessons. Some are not new but just a re-learning of old lore: ‘banks need to hold adequate capital’; ‘real-estate prices can fall dramatically’; ‘financial institutions need to avoid excessive risk taking’. The authorities are pursuing a long list of regulatory initiatives to address the externalities arising from risks in banks and markets, including Dodd–Frank in the US, the European Market Infrastructure Regulation (EMIR) in Europe, the report of the Independent Commission on Banking (ICB) in the United Kingdom and the various Basel capital and liquidity rules internationally. And the Financial Stability Board has taken on a role in coordinating much of the other international effort. Academic research also has a large part to play in this process, in both identifying the issues and proposing or evaluating policy responses.

A lot of discussion is taking place around disentangling different forms of complexity in the market place. For example, regulators are promoting more transparency around funding and legal entity structure within complex financial institutions. And there is also a growing body of work that is exploring clearing houses and exchanges as important structural vehicles to mitigate the increased inter-connectedness driven by the growth of derivatives.