Before the world’s twenty lead economies meet and financial regulation is on their agenda.  Douglas J. Eliot writes: We are part of many global reform initiatives, such as those undertaken by the Basel Committee on Banking Supervision and the Financial Stability Board. These have established important common rules on bank capital and liquidity requirements, as well as the new rules governing derivatives markets and certain other reforms. The U.S. has substantial influence on the shape of these rules and their application and we should help ensure that they are appropriately calibrated to optimize the balance of safety and economic efficiency.

In some areas, it appears that the global rules may be too harsh and may limit the availability of credit provision through banks or their affiliates, either making such credit harder to get or more expensive, or pushing the business into the so-called “shadow banking” sector, where it may be more dangerous to the financial system. (Some of this should move to markets or non-bank credit channels. The concern is about regulatory arbitrage where some business moves to where it is less safely and effectively controlled.) Concerns have been raised, for example, about infrastructure financing, loans to small and medium sized enterprises, and government debt of emerging market economies, which are important drivers of global growth.