Rejecting the current approach to financial regulation based on a laissez faire regime on risk production and allocation, the authors advocate that regulation must contain and monitor systemic risks through a top-down approach, while the resulting morphology must be consistent with market discipline imposing bankruptcies. Apart from rules for risk containment with a sharp distinction between leveraged financial institutions, non-leveraged financial institutions and non-financial firms, the proposed new framework also covers rules for derivatives, markets, transparency, crisis resolution, multinational financial institutions as well as supervisors' powers and accountability.

 
January 22, 2010.