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Comments on ‘Reform of Financial Supervisory and Regulatory Regimes: What has Been Achieved and What is Still Missing’ by Takatoshi Ito

This paper reviews the regulatory and supervision policy in the United States before the Global Financial Crisis (GFC) and the structural reforms after GFC. The paper argues that large financial institutions were not well supervised before the GFC due to overlaps and cracks among supervisory agencies and due to the too-big-to-fail moral hazard. In response to the GFC, there was the creation of the G20 summit, Basel III proposed by the Bank of International Settlements, and the implementation of a new law to enhance financial stability in the United States, and these are discussed as reforms after the GFC. However, the paper emphasizes that despite all these reform efforts, still missing is the establishment of an orderly resolution mechanism for systemically important financial institutions (SIFI). Establishing an orderly resolution mechanism for SIFI is difficult because we need to avoid the moral hazard while maintaining financial stability. Finally, the paper makes a comparison of the GFC in the United States with the Japanese experience during the banking crisis of 1997–98. This is a very interesting paper that makes contributions of interest to both academics and policy makers. The discussion on the causes of the GFC, responses to the GFC, and what is still missing among reform efforts is particularly timely at this point of time, as more than three years has passed since the outbreak of the GFC. The paper discusses these important issues in a succinct manner, and raises one important issue –how to avoid the too-big-to-fail moral hazard while