A new theory of financial regulation: Predicting, measuring and preventing financial crises

The frequency of financial crises in the last 20 years can be attributed to the lack of a comprehensive theory of financial regulation to guide policy makers. Existing theories fail to define the range of regulatory models, the causes of regulatory failure, and how to measure and prevent it. Faulty design of regulatory models, and the lack of ongoing performance monitoring incorporating early warning systems, is disrupting economic and social development. The new theory illustrates the necessity for a staged approach to liberalisation, which first assesses the capacity to conduct effective prudential supervision, before attempts are made to remove protective measures.