New monetary policies must be accompanied by reforms

Expansionary monetary policies adopted by developed countries entail a series of corresponding reforms in financial regulatory frameworks, according to an article in People's Daily. Here are some excerpts:

To deal with the global financial crisis and promote economic recovery, many developed countries adopt expansionary monetary polices one after another. They bring in extremely low interest rates and quantitative- easing policies.

These changes all suggest the necessity to strengthen reforms of financial regulatory frameworks. To some extent, the current global crisis is caused by a series of outdated financial regulatory mechanisms.

The reforms must make the financial regulatory framework more resistant to systematic risks. In many countries, reforms to the financial regulatory system make the prevention of such risks a priority.

The United States set up the Financial Stability Oversight Council, and the European Union set up the European Systemic Risk Board made up of central bank governors of major member states. Both organizations control systematic financial risks.

The main economies in the world are coordinating their supervisory and regulatory frameworks to improve the effects and efficiency of regulation. The European Banking Authority, European Securities and Markets Authority and the European Insurance and Occupational Pension Authority are all newly established to strengthen regulation in various important fields related to finance.

The United Kingdom recently amended its Financial Services Bill to give more powers to the Bank of England and Financial Services Authority to consolidate their responsibilities as regulatory organs of finance.

The reforms must strengthen macroprudential regulations to fill the gaps left by traditional regulations in a new environment full of systematic risks.

The Financial Stability Board, Basle Committee, IMF and Bank for International Settlement have all promoted the development of tools used for macroprudential regulatory frameworks, especially strengthening international capital flows.