1. Does new international regulation help crisis prevention? Implications for Middle Income Countries? Stephany Griffith-Jones, sgj2108@columbia.edu Shari Spiegel and Matthias Thiemann

2. Overall context Aims of the financial system - Managing risk and avoiding crisis - Allocating capital to the real economy efficiently - Financial system did neither

3. Some key problems - One problem: OTD-model with its increased leverage and maturity mismatches which increase systemic risk - Crisis revealed too low core capital, leverage too high and - Both accounting and regulation was pro- cyclical

4. Basel 3 Size and qualitio of core capital improved (but is it enough?) Simple leverage ratio 1:30 (problematic) Counter-cyclical regulation Liquidity coverage ratio positive

5. Implications for middle income countries Several elements of Basel 3 positive, such as countercyclical buffers and liquidity ratios; increasing quantity and quality of core capital if needed Too slow and gradual introduction of reforms  desirable to accelerate in MIC‘s?

6. Dodd-Frank Act More rigorous than initially expected, but weakened by lobbying, e.g. Volcker rule and derivatives, further diluted in implementation Positive institutional developments: consumer protection agency (prevents abuse) and systemic risk regulator also in EU (prevents silo-thinking about systemic risk) both relevant for MICs

7. Policy suggestions MIC‘s may wish to consider Counter-cyclical regulations Prevent large currency and maturity mismatches Possible increase of quantity and quality of core capital Putting all transactions on the balance sheet Forcing derivatives on exchanges Require foreign banks to have subsidiaries and not branches