What is the Global Financial System

the global financial system consist of the global international monetary system with its official
understandings, agreements, conventions and institutions as well as the private and official
processes, institutions and convention associated with private financial activities.
What are its components?
The global financial system has three components: the private sector institutions, the nations that
have supervisory jurisdiction over the private institutions and the international institutions through
which the national authorities coordinate and cooperate.
What is the Global Financial Architecture?
The global financial architecture is the collective governance arrangements at the global level for
safeguarding the effective functioning (or the stability) of the global financial system. It is governed
by international financial organisations composed by countries that have agreed to be part of them
What is the global financial regulation?
The global financial regulation consists of international financial standards elaborated at the global
level and widely accepted as good principles, practices or guidelines in a given area.
Which are the main justifications for international financial regulation?
The basic economic rationale is the possible existence of externalities generated by financial
markets activity which can't be easily addressed by private sector.
What are the historical reasons for international financial regulation?/What are the lacks of
global financial regulatory system before the global crisis?
The reasons arose after the 1980s and were: 1) increasing of globalised capital markets; 2) easier
cross-border financial flows; 3) changing channels of financial intermediation due to new forms of
unregulated investments (hedge funds, private equity); 4) birth of a few dominant institutions in
global capital markets (Citigroup, HSBC and New York Stock Exchange); 5) existence of small
number of dominant marketplaces; 6) growth of concentration in financial industries; 7) increased
multipolarity of the global economy.
What are the lacks of global financial regulatory system before the global crisis?
What is the economic theory at the base of the need for international financial regulation?
The main approach is the risk-based supervision approach. It is a structured process aimed at
identifying the most critical risks that face each subject and through a focused review by the
supervisor to assess the subject's management of those risks and the subject's financial vulnerability
to potential adverse experience.
What is the definition of financial regulation?
Financial regulation is the process of authorising, regulating and supervising financial institutions
and markets.
Which are the main regulatory areas at the international level?
Main regulatory fields cover: 1)accounting standards; 2) bank capital requirements; 3) money
laundering; 4) investor protection.
What degree of regulation should there be?
The range of regulation to set is justified when it is able to reach a suitable trade-off between the
two extremes of rigid state control of financial system (full regulating) and no regulatory
intervention at all (free market).

Which are the criteria forming the base of the choice about the degree of regulation?
In principle, there is a rationale for regulatory intervention when the benefits exceed the costs that
this intervention imposes on financial institutions and markets.
What are the issues in the use of such criteria?
The main issues regard the cost-benefit analysis which is not usually easy to be done since costs are
usually quantifiable earlier and easier than benefits.
What are the tool to establish the adequate nature of financial regulation?
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What are main risks in global financial markets?
Main risks are the systemic risk and the information asymmetries risk.
Which are the appropriate kind of intervention to face each risk?
For systemic risk we need prudential standards designed to safeguard solvency of intermediaries.
For information asymmetries risk we need conduct of business rules directed to investor protection.
What is the domino effect?
Is the contagion resulting from the banks' special position in the payments network due to their role
in maturity transformation and liquidity provision.
Which are the costs connected to domino effect?
1)cost of externalities, which can be calculated in terms of lost jobs, lost reputation, and lost of
shareholders value. It is the cost to the economy arising from domino effect which cannot be easily
internalized.
2)cost of lender of last resort: the potential cost suffered by the lender of last resort when a domino
effect arise from a bank failure.
Which are the prudential standards related to the domino effect costs?
The existence of externalities justifies the enforcement of larger reserves to take account of
potential external cos to the economy if the bank fails.
Furthermore, the enforcement of prudential standards is usually cheaper than the potential
intervention of the lender of last resort.
Which are the kinds of prudential standards?
1)Capital requirements, which provide a cushion against loss and increase market confidence; 2)
Liquidity requirements, which reduce institutions vulnerability to shocks; 3) Adequate management
and control frameworks, which increase information flows to supervisors by a continuous dialogue
with managers and controllers.
Should the prudential regulation and supervision be different between different countries?
Globalised financial markets and cross-border financial institutions require that prudential
requirement are standardised and common
What is the regulatory competition?
It is a phenomenon in law economics and politics concerning the desire of law makers to compete
with one another to attract businesses or other actors to operate in their jurisdiction.
What is the regulatory Arbitrage?
It is the race between countries to the strongest regulatory framework, sometimes avoiding
prudential standards set by international standard setting bodies that distract businesses.

Which is the kind of financial regulation more appropriate to face the information
asymmetries risk?
Conduct of business rules
Which are the kinds of information asymmetries?
Types of information asymmetries can be related to the economic state of companies or they can
manifest themselves as difficulty for the investor to understand the terms of investment contract
stipulated by an intermediary.
Which are the kinds of conduct of business rules?
There are rules against the abuse of insider trading information and rules directed to ensure
financial soundness of intermediaries and issuing companies such as: rating agencies, more
transparency in investment and savings market and prudential supervision of issuing firms.
What dimension the information asymmetries regulation should have?
Conduct of business rule must be common and stadardised at the international level to avoid that
financial firms can evade domestic rules through foreign subsidiaries.
What degree should the financial regulation have in the name of financial stability?
Regulation in the name of financial stability is justified only when a singular phenomenon of crisis
(of a financial institution or in the price markets) could have damaging consequences for the sector
as a whole (confidence loss)
Which are the criteria for regulatory intervention in the name of financial stability?
To decide a regulatory intervention in the name of financial stability regulators should have regard
to the interests of the financial system as a whole, should know the long term benefits of creative
destruction, should be cautious in fixing limits and aims of regulatory intervention. Ultimately, it is
necessary for regulators to find a correct balance between regulation in the name of financial
stability and freedom left to financial markets and institutions.
Which criteria could be adopted to overcome the conflict between regulation and
competition?
Usually, each country undertakes evaluations referring to reasonable prudential standards and
denies the access when foreign intermediaries are below this level.
What is the better regulation principle?
Is a method of policy making aiming at preventing rules from failing to meet the target accurately
or unacceptable cost and which estimates ex-ante the impact of new rules. It starts from a proposal
planning, then there is an impact analysis, a consultation, the final proposal and the implementation.
After the implementation there is an ex-post assessment. Notice that the consultation phase takes
place at all stages of the regulatory process.
What is the meaning of regulation activity?
It is the multilateral activity or rule making at the global level for safeguarding the effective
functioning of the global financial system.
What is the meaning of supervision Activity?
The supervision activity consists of the monitoring and enforcing activities.
At the international level, what is the dimension of regulation?
Regulation is de-centralized, but there is a tendence towards the centralization by the creation of an
international financial standards regime.

At the international level, what is the dimension of supervision?

Supervision is decentralized.
What is the link between financial law and financial crises?
The outbreak of global financial crisis was the father of financial laws.
Give some example of this link
development of modern banking regulation and supervision after the 1929 crisis; creation of the
Basel committee after the Herstatt affair in 1974; creation of the stability forum after the Asian crisi
of 1999; reform of GFA following the crisi of 2088-2009.
Which were the features of pre-crisis global financial architecture?
It was dominated by G7; it was very complex, with consequent difficulties for cooperation; it was
largely voluntary and therefore slow to act; it was lacking in an organization with the leadership.
Which are the weakness of pre-crisis global financial architecture?
1) piecemeal architecture of the system due to the existence of a highly complex network of
financial supervisors overseeing and regulating different parts of the financial markets.
2) consequent difficulty in identifying correct answers to the macro-trends that led to the crisis.
3)serious accountability gap within regulatory institutions structure. 4) weak links between
macroeconomic policy makers in finance ministries and central banks on one hand and regulators,
on the other. 5) specifically for Eu, eak central coordination of regulation of the single financial
market.
Which are the sources of systemic risk in the global financial system?
1)global financial institutions (large and international banks/groups but also including global
investment banks and insurance companies); 2) global financial markets; 3) unregulated financial
market activities of institutional investors.
Which are the regulatory tools to face these sources of systemic risk?
1)market discipline (including private risk management and governance along with adequate
disclosure of informations via financial reporting and market transparency); 2)financial regulation;
3)microprudential supervision of financial institutions and products; 4)macroprudential supervision
of markets and the financial system as a whole; 5)crisis management and resolution.
Which were the features of pre-crisis GFR?
The global financial institutions were regulated within the perimeter of all five lines of defense.
Instead, global financial markets are indirectly regulated, in the sense that there is a surveillance
through private international networks and business cooperation agreements and the informations
are shared by central banks and supervisory and regulatory authorities. Unregulated financial
market activities are neither rugulated nor supervised.
Which were the weakness of pre-crisis GFR?
1)private risk management and market discipline failed and market disfunctioned due to imperfect
information, opaque instruments and exposure, poor incentive structures, insufficient capital and
liquidity buffers and excessive leverage, inadequate governance by top management, insufficent exante market discipline and loss of trust; 2)official supervision failed to promote the safety and
soundness of systematically important financial institutions; 3)macroeconomic policies contribute
to conditions conducive to financial crisis; 4)national and global markets surveillance failed to
identify the buildup of institutional, market, and system-wide financial imbalances with sufficient
clarity and rigor to persuade policymakers to take remedial action; 5)pre-crisis central bank and
finance ministry tools for addressing liquidity/solvency issues and for restoring market trust and
confidence proved to be inadequate.

Which are the crisis policy implications for the global financial regulatory system?
The main policy implications are the need to reform the international regulatory structure in order to
act in a global and parallel manner in the different sectors of financial system and the the need to
reform financial regulation alongside the rapid evolution of financial markets.
Which are the improving initiates taken at the international level?
After the domestic subprime crisis, a variety of initiatives were taken at the international leve with a
view toward reforming the global financial architecture and enhancing and supplementing the
existing IFSs in order to eliminate dangerous gaps in the supervision and regulation of international
financial markets.
What is the nature of the improving initiatives?
The nature of the improving initiatives can be ex ante or ex post; the improving initiative ex ante are
mainly of preventive nature as their aim is to make the international financial system more crisis
resistant. Measures taken ex post look to improve cross border crisis resistant management and
establish early warning system.
Who are the international organisations involved in improving initiatives?
1) G20; 2)UN commission of experts; 3)Group of thirty.
Which are the fundamental activities of the international financial organizations within the
global financial regulation process?
The international financial architecture is composed of the various institutions that produce,
implement and assess the implementation of international financial standards
How can the international financial organization be grouped in relation to their nature and
their composition?
The international institutions can be divided in five groups: 1)informal government institutions like
G7, G8, G20; 2) formal government institutions like OECD, FATF ,WB ,IMF; 3) central banks
institutions like G10, CPMI, BIS; 4)Regulator institutions like FSB, BCBS, IOSCO, IAIS, joint
forum,..; 5)Professional trade associations like IADI, IASB,...
What are the main international organisations included in the global financial regulation and
which is their specific role?
The reformed international architecture following 2009 restructure is based on the G20, the
reformed IMF and the Financial Stability Board.
What is the meaning of legal status?
Legal status stands for authority.
What is the legal meaning of the word legitimacy?
Legitimacy of an international financial standard setting body means membership.
What is the legal meaning of the word capacity?
Capacity stand for mandate of the IFSs.
What is the legal meaning of the word authority?
Authority stands for Legal Status.
Who are the actors involved in the global financial regulatory process?
The G20, the IMF, the FSB, the standard setting bodies and the national jurisdiction.

What is the specific role of each of them?

The IMF role is the surveillance and implementation of IFSs; the G20 has the overall political
guidance; the FSB oversee and coordinate the standard setting process; the standard setting bodies
are involved in the elaboration of IFSs; the national jurisdiction incorporate the IFSs in domestic
regulation and practice.
Which is the weakest link in the global regulatory process and why?
The weakest link is the implementation of IFSs at national level; this is because the IFSs have no
legally binding power on their own
What are the contents of the international financial standards?
Standards take the form of recommendations widely accepted as good principles, practices or
guidelines in a given area.
How can the international financial standards be classified?
Standards may be classified by their nature or their scope. 1)classification by their scope is divided
in sectorial standards which cover each sector such as government and central bank, securities,
banking, insurance and functional, which cover areas within sectors, such as governance,
accounting disclosure and transparency, capital adequacy, supervision,..; 2)classification by their
nature is divided in principles, practices, methodologies/guidelines in order of degree of specificity.
Why are the international financial standards important?
The development and implementation of internationally accepted economic, financial and statistical
standards can hel promote sound domestic financial systems and international financial stability.
More specifically they strengthen domestic financial system by encouraging sound regulation and
supervision, greater transparency and more efficient and robust institutions, markets and
infrastructures. Moreover, they promote international financial stability by facilitating better
informed lending and investment decisions, improving market integrity and reducing the risks of
financial distress and contagion.
Who are the international standard setting bodies?
BCBS, Committee on the Global Financial System, Committee on Payment and Settlement
System...
What is the FSB's compendium of international financial standards?
The compendium of international financial standards is a set of 12 standard areas highlighted by the
financial stability board, which is a key of sound financial systems and deserve the priority of
implementation.
Which are the groups including the international financial standards identified by the
financial stability board?
Financial stability board has highlighted three areas: 1) policy transparency which include data
transparency, fiscal transparency, monetary and financial policy transparency. 2)Financial Sector
regulation and supervision including banking supervision, securities, insurance, payment systems,
anti money laundering and combating the financial terrorism. 3) market integrity covering corporate
governance, accounting, auditing, insolvency and creditor rights.
What is the legal nature of international financial standards?
The standards have the nature of soft laws.
Why have they this legal nature?
the international standard setting bodies are not based on an international treaty and they have no

legal personality, nor authority.

What are the legal tools to make them compulsory?
Their implementation is encouraged by a number of incentives, both official, like FSAPs, ROSCs
and peer pressure, or market incentives.
What are the market and official incentives to promote their implementation at the national
level?
Peer pressure, peer assessment, blacklisting.
When was the G20 group created?
The G20 was created in 1999.
What are the reasons of its creation?
It was create in response to both the financial crisis that arose in a number of emerging economies
in the 1990's and a growing recognition that some of these countries were not adequately
represented in global economic discussion and governance.
When has the G20 group become relevant in sponsoring the international standard setting
process?
At the Washington and London summits of 2008 and 2009 the leaders of the G20 acknowledge their
will to reform the financial regulation at the global level and to take whatever action was necessary
to do so.
Which are the countries in the G20 membership?
The forum brings together 20 world's major advanced and emerging economies.
Which are the international organizations invited to relevant G20 meetings?
The international monetary fund on a permanent basis, the world bank on a permanent basis, the
financial stability board, the united nations, the international labour organization, the organization
for economic cooperation and development, the world trade organization.
Which are the countries excluded from its current composition?
Netherlands, Hong Kong, Singapore, Spain and Switzerland.
Why should they be included?
To male the international financial architecture more consistent.
Is the G20 a formal international organization?
The G20 is a informal government institution.
It is a permanent organization?
It would become a permanent organization but to do so, its organisation and infrastructure must be
change.
Which are the features of its internal organization?
The G20 has no seat, nor any permanent staff and it functions on the basis of rotating chair.
What are the issues linked to its current organization?
The G20 has no formal legitimacy or competence to impose rules on its participants or on other
countries institution.

What is the G20 current mandate?

The aims of the G20 are the policy coordination between its members in order to achieve global
economic stability, the sustainable growth, to promote financial regulation that reduces risks and
prevent future financial crisis and to create a new international financial architecture.
What are the aims of the Washington summit action plan?
The main aims were to restore global growth, to strengthen the international financial system and to
reform international financial institutions.
What are the reforming areas identified in the action plan?
1)Strengthen transparency and accountability by enhancing disclosure of complex financial
products and ensuring complete and accurate disclosure by firms of their financial conditions;
2)enhancing sound regulation by strengthening regulatory regimes, prudential oversight and risk
management. Ensuring that all financial markets, products or participants are regulated or subject to
oversight. Make regulatory regimes more effective over the economic cycle; 3)promoting integrity
in financial markets by increment in investor and consumer protection, avoiding conflicts of
interests, preventing illegal market manipulation and fraudolent activities and abuse, promoting
information sharing; 4)reinforcing international cooperation; 5)reform international financial
institutions.
Which are the key principles to guide global financial regulation identified during St.
Petersburg summit?
1) Inclusion: global debates and inclusion of small or poor countries. 2)Not one size fits all:
establish a level playing field with harmonized international standards but national discretion will
be necessary in other areas. 3)Simple rules. 4)Transparency. 5)Scope: the scope of regulation need
constantly to be reshaped. 6)Coherence: to the new financial regulation.
When was the IMF conceived?
July 1944.
During which formal meeting was conceived?
Bretton Woods.
When was it formally organised?
December 1945.
What is its legal status?
Formal governmental institution based on Articles of Agreement.
Where are its headquarters?
Washington.
How many countries are included in the international monetary found membership?
The members of the IMF are 186 of UN members, plus Kosovo and republic of south Sudan.
What is the representativeness of each included country?
finance ministers and governors of central banks. Each state is represented on a 24-members
executive board. All members appoint a governor of the IMF's board of governors.
What is the IMF mandate?
Aims of the international monetary fund are to foster global monetary cooperation, secure financial
stability, facilitate international trade, promote high employment and sustainable economic growth,

reduce poverty.
What are the legal tools to carry out his mandate to foster financial stability?
To ensure stability of international monetary and financial system the tools are: 1)surveillance,
which consists in monitoring and discussing countries economic policies in order to assess
individual policy impact and encourage adoption of more sound policies. 2)assistance and training,
offered in 4 areas: monetary and financial policies, fiscal policies and management, compilation and
dissemination of statistics, banking and financial supervision and regulation. 3)Lending. 4)Research
and Data.
After the global financial crisis, how has the IMF governance been reformed?
The IMF is a quota based organisation, therefore, at the London summit, the G20 enhance the
representation of emerging market economies through a revision of quotas.
After the global financial crisis, how has the IMF mandate been reformed?
The IMF reform of mandate was focused on the IMF role in the new reformed international
financial architecture, particularly in connection with the elaboration and implementation of
international financial standards.
What is the rationale for the IMF reforms?
The rationale was to reflect changes the world economy and the new challenges in globalization and
to give emerging and developing economies greater voice and representation.
What are the aims of the IMF reforms?
The IMF leaders committed to reform IMF from two sides: governance and mandate, in order to
modernise the IMF. They also increase the funds available to the IMF in order to contain the
spreading of the crisis to emerging and developing countries.
What is the substance of the IMF surveillance and lending activity reform?
Since 2009 the IMF has undertaken a review of its surveillance mandate including: 1)undertaking a
new early warning exercise and vulnerability exercise for advanced economies. 2)preparing a
synthesis of the world economic outlook and global financial stability report. 3)integrating financial
stability assessment program for the 25 most important financial system. 4)preparing on a trial
basis, dedicated reports of the policies of the most systematically important economies.
5)leveraging cross-country experience by preparing cross-country thematic reports theat draw
policy lessons for other member nations facing similar problems.
The lending activity was enhanced in order to address the underlying causes of countries' balance of
payments financing needs; in particular: 1)introduction of a new high access crisis prevention
instrument (flexible credit line). 2)more flexible stand-by arrangements as crisis prevention tools.
3)new lending instruments including increased concessionality and temporary interest relief.
4)doubling of access limits with revised changes fees and maturities. 5)ensure conditions
sufficiently tailored to the circumstances. 6)elimination of structural performance criteria.
What is the IMF new role in the global financial regulation process?
The IMF and the WB promote resilient financial systems around the world through the financial
sector assessment program and the report on the observance of standards and code.
What are the IMF legal instruments to spread an international standard regime worldwide?
Together with the WB, the IMF uses the financial sector assessment program and the report on the
observance of standards and codes.

What is the aim of the assessment made by the FSAPs?

Main goal of FSAPs is to identify gaps in international financial architecture and regulation in
support of crisis prevention.
Is country participation to FSAPs compulsory?
Participation in a FSAP is voluntary.
Are the outcomes of the FSAPs publicly available?
Most countries have made them publicly available.
What are the weakness of the FSAP highlighted by the global financial crisis?
The financial crisis of 2008 has highlighted some weakness of the program: the voluntary nature of
the program implying that countries might have benefited from an in depth examination of their
financial sectors had not undergone a FSAP; the assessment did not always identify all sources of
risk; where risks where identify by the FSAP, the warnings where no loud and clear.
How has the FSAP been reformed?
On September 2009 the IMF and the WB have reformed the program to include the following
features: 1)more candid and transparent assessments; 2) Improved analytcal Toolkit; 3)More
flexible modular assessment, tailored to country needs; 4)better targeting of standards assessments.
What is the aim of the assessment made by the ROSCs?
ROSC is an assessment of countries compliance to standards and core principles on data
dissemination, fiscal transparency, auditing and accounting, insolvency and creditor rights systems,
corporate governance, financial sector.
What are the benchmark of the assessment made by ROSCs?
The ROSCs are prepared with regards to a list of internationally recognised standard, codes and
principles, including three basics groups: 1)transparency standards; 2)financial sector regulation and
superviosion; 3)standards concerned with market integrity.
What is the main problem connected to the assessments made by the FSAP and ROSC?
The problem is that both are voluntary.
How are the international financial trying to solve that problem to improve the efficiency of
the assessment?
One first solution is that all the members of the IMF are committed themselves to undertake FSAP
and to support the transparent assessment of their nation regulatory system.
What is the IMF role in the global financial system?
The IMF, as an institution with macro-financial supervision, universal membership, and macro
economic expertise, was invited to take a leading role in drawing lessons from the current crisis,
consistent with its mandate and to conduct early warning exercise in cooperation with the FSB.
How are the relationships between the IMF, G20 and FSB regulated?
The G20 has taken the lead in the overall reform and oversight of the international financial
architecture. The G20 countries hold a very substantial majority of the vote in the Executive Board
and General Meeting of the IMF, although not all of the IMF members are represented by the G20.
When was the WB founded?
1944 at the Bretton Wood conference.

Which are the international organizations comprised in the WB?

IMF and FSB are other members of the WB.
What is its legal status?
It is a formal governmental institution.
Where are its headquarters?
The WB is based in Washington as the IMF.
How many countries are included in WB membership?
188.
What is the representativeness of each included country?
Ministers of finance or minister of development.
What is the WB mandate?
Reducing poverty, sustaining development, promoting foreign investment and international trade,
facilitating capital investment.
When was the FSF established?
1999
Which were the countries promoting its creation?
G7 countries
What was its legal status?
Regulators' institution.
Where was established its secreteriat?
Basel
How many countries were included int the FSF memberships?
G7 + Honk Kong, Singapore, Netherlands, Australia and Switzerland.
What was the representativeness of each included country?
Finance ministers, central bankers, supervisory agencies for financial stability.
What was the financial stability forum mandate?
Promoting international financial stability; improving the functioning of financial markets; reducing
the tendency for financial shocks to propagate from country to country.
What were the legal tools to carry out its mandate to foster financial stability?
Assessing vulnerabilities affecting the international system; identifying and overseeing actions to
face these vulnerabilities; improving coordination and information exchange among financial
stability authorities.
What are the FSF reforms promoted by the G20?
Expanded membership; broadened mandate; stronger institutional basis; enhanced capacity; early
warning exercise with IMF; mandatory reports to G20.
How has the FSF membership been expended?
It has included all G20 countries and the European commission.

Who are the countries representatives included in the FSB?

Central bank governors or immediate deputy; the head of the main supervisory agency; deputy of
finance minister.
What are FSB mandate reforms?
To address vulnerabilities: assessing vulnerabilities affecting the financial system, identifying and
overseeing corresponding actions; promoting coordination and information exchange among
authorities responsible for financial stability; monitoring and advising on market developments and
their implications for regulatory processes; undertaking joint strategic reviews of the policy
development work of the international standard setting bodies to ensure their work is timely
coordinated; early warning exercise with the IMF;
What are the new FSB member's commitments?
Pursue the maintenance of financial stability; maintain the openness and transparency of financial
sector; implement international financial standards (12 international standards and codes); undergo
periodic peer reviews, using among other evidence of the IMF and WB public FSAP reports; take
part in implementation monitoring of agreed commitments standards and policy recommendations.
What is the aim of financial stability reforms?
To strength the role of promoter of construction of an international standards regime and to improve
compliance with international standards.
Where did the need for an international financial standard regime arise from?
The principal rationale for the construction of an international standards regime was the 1997-1998
global financial crisis.
What was the main tool for the previous FSF to promote the spreading of the IFSs?
The FSF compiled a compendium of existing international prudential standards, from which it
identified 12 key standards to be promoted worldwide.
What where the reasons of FSF legitimacy, capacity and authority issues?
Its membership was too narrow and the representation of developing countries was very limited
which created a legitimacy problem. The authority problem comes from the fact that it was only an
informal forum and it had not any effective mechanism for encouraging compliance with
international standards. The capacity issue comes from the fact that the FSF had not regulation or
supervision powers.
Which are the features of the new FSB that can help to overcome the weakness of the previous
FSF?
Three features of the new FSB will help it overcome some issues of the FSF' weaknesses: 1)a larger
membership to solve the legitimacy issue; 2)assignment of new mechanisms to encourage
compliance with IFSs which gives to FSF more political authority; 3)a stronger capacity to tackle
macroprudential issues which gives more capacity to the new FSB than the previous FSF.
What are the FSB instruments to solve the FSF' legitimacy problem?
Increased legitimacy arise from the extension of FSB membership from the G7 to the G20 countries
and the European commission. Moreover, the inclusion of emerging countries among many
standard setting bodies have contributed to raise the legitimacy of FSB.
What are the FSB' new mechanisms to solve the FSF' authority problem?
Increased authorities arises from the assigment of more effective mechanisms for encouraging

compliance with international standards. The FSB has been assigned four new mechanisms to
encourage compliance with international standards: 1)the commitment of FSB members to undergo
an assessment under the FSAP every five years and to publicize the detailed IMF/WB assessment
used as a basis for ROSCs; 2)the new membership commitments to implement international
standards; 3)the new peer review process for the FSB members and the new FSB-led process to
tackle non cooperative jurisdictions; 4)the development by the FSB of a toolbox of measures to
promote adherence to prudential standards and cooperation with non-cooperative jurisdiction.
What are the new powers of the FSB to solve the FSF' capacity problem?
Increased capacity arise from the assignment of macroprudential regulation and supervision powers
in order to face systemic risk.
After the reforms, what role could the FSB assume in the global economic architecture?
After the reform, the FSB has better chances to assume the role of fourth pillar of global economic
governance.
Could the FSB assume the role of a new fourth pillar together with the IMF, WB and WTO?
It could not assume the role of financial global regulator for the following reasons: 1)the financial
stability board is a very different kind of pillar than other institutions such as IMF, WB and WTO;
2)the strategic place of finance in domestic political economies makes any serious delegation of
power to a global regulator very unlikely.
What is the bank for international settlement?
Is an organisation of central banks. It is the oldest international financial institution.
Which is the nature of the BIS members?
It has the legal status of company limited by shares subscribed or acquired only by central banks or
by financial institutions appointed by the board.
When was the BIS founded?
It was founded in 1930 in the context of the Young plan which dealt with the reparation payment
impose to the Germany after the first world war.
Where are the BIS headquarters?
Its headquarter are in Basel, but there are two representavive offices in Honk Kong and Mexico
City.
What are the BIS aims?
Bis aims are to fostering international monetary and financial cooperation, serving as a bank for
central banks, advises caution against fraudolent schemes.
To carry out its goals, the BIS is a meeting place for central banks, organize research and statistics
seminars and workshop, act as a prime counterpart for central banks and serves as a trustee in
connection with international financial operations.
How many countries its membership includes?
57 members plus the ECB.
Who are the BIS internal bodies?
General meeting, board of director and management.
What are their specific functions?
The general meeting of member central banks decide on the distribution of the dividend and profit,

approves the annual report and accounts of the bank and select the external auditors. The Board of
Directors is responsible for determining the strategy and policy direction while the management
carries out the policy determined by the board of director.
Which are the BIS standing committees?
The Bis standing committees are: BCBS, committee on global financial system, committee on
payment and market infrastructures, market committee, central bank governance forum, irving
fisher committee on central banks statistic.
Which are the international organisations hosted by the BIS?
International association of insurance supervisors, international association of deposit insurers,
FSB.
What is the Basel Committee for banking supervision?
The Basel committee is the primary global standard setter for the prudential regulation of banks.
Which is its main mission?
Strengthening the regulation, supervision and practices of the banks worldwide.
When was the Basel committee created?
It was created at the end of 1974 by G10 central banks governor.
How many countries are included in its membership?
27 members plus the EU
What are its members commitments?
Its members have to work together to achieve the mandate of the BCBS, promote financial stability,
continuously enhance their quality of banking regulation and actively contribute to the development
of BCBS standards, implement and apply BCBS standards in their domestic jurisdiction within the
predefined time frame established by the committee; undergo and participate in BCBS reviews to
assess the consistency and effectiveness of domestic rules and supervisory practices in relation to
BCBS standards; promote the interests of global financial stability.
What are the internal bodies and which are their functions?
Not clear; the group of governors and head of supervisors is the oversight body of the BCBS.
What are BCBS activities to carry out the mandate?
What is its legal status?
What is the nature of BCBS regulation?
What are the international organization to which the BCBS is accountable for its work?
Which are the BCBS regulatory activities?
Which are the main areas subjected to the BCBS regulatory power?
What were the first principles endorsed by the BCBS?
What was the rationale for their endorsement?
Which are the fundamentals of 1975 Concordat?
The concordat set out principles by which supervisory responsibility should be shared for banks
foreign branches, subsidiaries and joint ventures between host and parent supervisory authorities.
Which are the aims of the 1975 Concordat? / Which are the prudential tools included in 1975
Concordat to guarantee an adequate supervision of cross-border banks?
Aims of the concordat are: to fix guidelines for cooperation between national authorities in the

supervision of banks foreign establishments; suggest ways of improving the supervision efficacy;
introduce the principle of consolidated supervision of international banking groups.
Which is the regulatory area focused by BCBS in recent years?
Capital Adequacy
What is the rationale for the regulatory intervention in this area?
The increasing access of banks in international trade and investments; the growth of foreign
operations of banks and therefore of competition in the main market places; existence of wide
differences between jurisdiction, in particular about capital requirements; need for removing
competitive inequalities due to differences in national capital requirements.
When was the first Basel capital accord introduced?
1988
What prudential instruments did it introduce?
It provided the implementation of a credit risk measurement framework with a minimum capital
standard of 8%.
What was the rationale for reforming Basel?
The increase of banks' trading activities; the developments of bank assets in the field of
securitisation; the increased sophistication of banks' own risk management; the devolment of
increasingly complex derivatives activities.
What was the paper reforming Basel I?
Market Risk Amendment of 1996
What were the main innovations?
Incorporate within Basel I a capital requirement related to the market risks, due to banks' open
positions in foreign exchange, traded debt securities, equities commodities and option; allow banks
to choose, as an alternative to standardised measurement method, internal value at risk model for
measuring their market risk capital requirements.
What were the reason for further amendments of Basel I?
Further amendments were necessary because: 1)capital basic measurement methods was seen to be
as over simple in relation to the variation in the risks of different types of financial instruments; 2)it
was judged important to be able to supervise the functioning of the banks' own risk management
system, especially those that used alternative capital measurement method; 3)more results would be
achieved through reinforcing rules by exposing bank management to market control.
When was the revised capital adequacy framework (Basel II) endorsed?
2004
What was the aim of this reform?
Creating an international standard that banking regulators can use to set how much capital banks
need to face the types of financial and operational risks they are exposed to.
What were the main innovations?
1)ensuring that capital requirements are more risk sensitive; 2)separating operational risk from
credit risk and quantifying both; 3)attempting to align economic and regulatory capital more close
to reduce regulatory arbitrage.

What are the three pillars introduced by Basel II?

Minimum capital requirements, supervisory review, market discipline.
What is the content of each one of them?
Capital requirements: types of risk, way of calculation of capital requirements, minimum capital
requirements; the main innovation is the greater use by banks of internal risk assessment system in
compliance with a detailed set of minimum requirements. Supervisory review: it deals with
regulatory response to pillar I, giving to regulators many tools of assessment of quality and
soundness of banks' internal system of risk management and control. Market discipline: it fixed
obligations of disclosure and transparency about banks' capital adequacy, risk position and internal
management and control system.
What are the main differences between Basel I and Basel II related to the pillar I?
What is the rationale for the revision of Basel II?
What are the weaknesses of Basel II?
What are the preliminary phases for the issuing of the new capital accord (Basel III)?
When was Basel III endorsed?
When will Basel III fully implemented?